Introduction

The Insolvency and Bankruptcy Code, 2016 (“the Code”), was designed to prioritize time-bound rehabilitation and maximization of asset value, explicitly seeking to revive businesses rather than merely collect debts. Despite these goals, the Code’s implementation has faced criticisms. Many cases drag on, and average creditor recoveries have remained modest. Stakeholders have therefore pressed for reforms to make the process more efficient and creditor-friendly.

One such reform was the pre-packaged insolvency resolution process (“PPIRP”) for micro, small and medium enterprises (“MSMEs”), introduced in April 2021. However, by September 2024, only 13 pre-pack cases had been admitted. Even though there were many reasons why pre-pack failed, one of the major drawbacks of the system was the inclusion of “Swiss Challenge” in the PPIRP.

The latest IBC Amendment Bill (2025) (“the proposed Amendments”) introduces sweeping changes. Alongside new rules for group and cross-border insolvency, the most notable is a brand-new Creditor-Initiated Insolvency Resolution Process (CIIRP). The proposed amendments however do not include the Swiss Challenge mechanism in the CIIRP, which had been a hallmark feature of the PPIRP.

In this article, we analyse Swiss Challenge in Insolvency focusing on why it failed in PPIRP but is exactly what CIIRP needs. The article also makes policy recommendations for embedding Swiss Challenge in a more efficient manner in the Code.

What is Swiss Challenge?

The Swiss Challenge has been regarded as a competitive bidding process where the authority receives a bid from a party and reserves it as the “base plan”. Then other applicants are encouraged to make an offer to the authority, which is supposed to be better than the base plan. If a competing bid is superior, the original proponent is usually given a “right to match”. This allows them to revise their offer and retain the project if they can meet or exceed the best alternative.

The idea behind Swiss Challenge is to balance innovation with fairness. It incentivizes private parties to bring forward ideas but also ensures that such ideas are not accepted without market testing. It is intended to maximize value and ensure transparency, thereby preventing collusive or preferential allocations of assets in both insolvency and public procurement.

This was introduced to the Indian insolvency domain, when PPRIP was added to the Code.

Swiss Challenge and Pre-Pack: Why did it fail?

Under PPRIP, the insolvent MSME, the Corporate Debtor (“CD”) if eligible under section 29A, is allowed to submit the base resolution plan (“BRP”) to the Resolution Professional (“RP”) which is then exposed to challenge for value maximisation. According to the Insolvency and Bankruptcy Board of India (“IBBI”), this safeguard is intended to maintain the level of stakeholder protection afforded in a standard corporate insolvency resolution process (“CIRP”) while preventing the process from being exploited for strategic advantage. The Committee of Creditors (“CoC”) then compares the BRP with other resolution plans submitted by interested third parties.

The core of the Swiss Challenge is that a third party can submit a better resolution plan. If the original promoter, often the current owner, cannot or does not match the improved plan, they risk losing their company to a new bidder.

However, several features of the Swiss Challenge sit uneasily with PPIRP’s goals. PPIRP was envisaged as a promoter-led speedy mechanism based on the Debtor-in-Possession model (“DIP”). A Swiss challenge introduces delays, litigation risk, and strategic bidding by opportunistic players who have no stake in continuity of the business. This undermines a primary goal of PPRIP, which is time compression.

PPRIP is essentially a pre-negotiated agreement between the CD and its creditors in an attempt to revive the insolvent MSME. A Swiss Challenge turns this negotiated process into an auction, defeating the primary purpose of reviving the CD’s business. The primary objective of the Code is reviving businesses, not selling them off for the purpose of recovery.

Overall, Swiss Challenge appears structurally misaligned with PPIRP. It erodes speed and confidentiality and conflicts with the debtor-friendly bargain that underpins a DIP-style pre-pack.

Is it the missing piece to complete CIIRP?

CIIRP is a recent out-of-court insolvency framework allowing a certain class of specifically notified Financial Creditors (“FC”) to initiate and oversee the entire resolution process without immediately involving the Adjudicating Authority (“AA”).

This new mechanism can be thought of as a ‘private treaty’ for insolvency resolution, as it empowers the creditors and the CD to negotiate and implement a resolution plan outside the AA’s admission process. Such a process mirrors the DIP model of the United States, which allows the CD to retain control of the operations while going through insolvency. The only instance when the doors of the AA  are knocked is for essential approvals, such as a moratorium or execution of the resolution plan, and/or as a fallback option if the process fails.

Under the CIIRP, if the initiating creditor is to place a BRP at the outset, it raises several concerns as to whether the valuation is correct? Could the asset attract as better bidder? Are other market participants being crowded out? These questions strike at the Code’s very objective which is aimed at value maximization and revival of the business. Thus, these questions cannot be answered merely by internal creditor deliberations and hence, the Swiss Challenge arrives as the missing piece of the puzzle.

By exposing BRP to 3^rd party improvement, the Swiss Challenge restores balance to CIIRP’s commitment to speed and a transparent, market-tested model. Through creditor control, mandatory disclosure and statutory timelines, it would allow a single-round and time-boxed Swiss Challenge to be conducted with minimal friction.

Additionally, such external challenges protect minority creditors as it ensures that the OCs are paid in full, increases bidder confidence while safeguarding against speculations of insider preference or strategic underbidding.

At the outset, CIIRP provides the very ingredients where PPRIP lacked, such as an open solicitation framework, creditor-driven governance and strict timelines. These collectively cure the misalignments that caused the challenge to fail in PPRIP. Thus, the Swiss Challenge within the CIIRP allows the creditors to seek a fair value of their debts promptly.

Therefore, the Swiss Challenge does not derail the CIIRP but in actuality, completes it. It supplies the competitive tension required for value maximization while consequently enabling the process to be fast, credible and efficient.

Policy Recommendations

At the initial stage, the BRP shall mirror the Pre-Pack subcommittee’s recommendation that the same shall be ready before commencement of the resolution process, and all the material information shall be disclosed by the RP in a “Standard Information Memorandum”.

Once the BRP is filed, the RP shall open a limited window for inviting competing bids, which shall be a single invitation that shall be received within 7 business days, keeping the statutory timeline strict and efficient. After the CoC identifies the highest-scoring challenger, an improvement cycle of 24-48 hrs. shall begin, allowing each bidder to enhance its previous offer. This single invitation and short-bid cycle prevents drawn-out auctions, which the ILC had warned against while keeping the speedy resolution process intact.

Additionally, to choose the best plan, objective scoring with creditor voting shall be established, which aids in reducing subjective bias and ensures value maximization rather than a purely political outcome. Each of the submitted plans shall be evaluated on predefined criteria (shall be notified by the government), such as cash offered, financial viability and management continuity that shall be evaluated by a committee consisting of the RP along with 1 expert advisor and 1 industry expert (also to be notified by the government).

Subsequently, WAS shall be computed for each plan, and such shall also be placed before the CoC for approval. This hybrid approach ensures that the 66% CoC approval and their commercial wisdom are utilized for selecting the best plan rather than just metrics.

Conclusion

There is a structural gap in the current scheme of CIIRP that cannot be solved internally and creates a risk of unilateral valuation, limited competition, and hence a potential for underpricing. The introduction of Swiss Challenge within the model CIIRP would allow a transparent and swift mechanism as contemplated by the Code rather than leaning towards a private settlement.

Unlike in PPRIP, in which the Swiss Challenge is in conflict with the DIP model and thus delays the process, the challenge within the CIIRP subjects the BRP to a discipline, single-round, competitive process that tests creditor-proposed plans against superior 3rd party plans.

Additionally, the creditor-control, mandatory disclosures, and strict timelines under CIIRP thus create an ideal environment for a controlled process that is value-maximizing and functions efficiently. Therefore, the Swiss Challenge does not only become the missing piece but also reinforces the legitimacy of CIIRP as a credible resolution