This approach is economically sound since creditors only have the contractually agreed share of the economic surplus created by a borrower with the rest of the surplus going to equity holders without any limits till a default occurs.
At that point the equity holders are protected by limited liability while the creditors stand to lose up to the entirety of their exposure to the insolvent debtor. In a single stroke, the Code removed “the divine right of promoters to continue in saddle”, as had been observed by the Hon’ble Supreme Court, restoring the interests of other stakeholders, especially the creditors.