New Delhi, March 29 -- Should insiders that lend to their own companies stand in the same queue as arm's-length creditors in insolvency? The answer, at least in liquidation, is largely 'yes' under the Insolvency and Bankruptcy Code of 2016.

A promoter may support its company by infusing equity in the guise of debt through a group entity. If the company later enters insolvency, the creditor, despite having enjoyed informational and structural advantages and effectively provided risk capital, may still rank alongside external financial creditors.

Judicial decisions reaffirm this. In Times Innovative Media Ltd, the appellant contended that the related-party creditor should be treated as an equity investor and be placed at the bottom of the...