Hidden Hedging: Protecting the CoC's Integrity
Credit Default Swaps (CDS) protect lenders from borrower default but create a conflict with India’s Insolvency and Bankruptcy Code. Fully hedged lenders (“empty creditors”) may prefer liquidation over revival, as they benefit from CDS payouts despite holding voting power in the Committee of Creditors. The blog calls for mandatory disclosure of CDS hedging and reduced voting rights for such creditors to protect the IBC’s goal of value maximization and long-term viability.