Abstract
This research examines the dual pathways of corporate insolvency proceedings in India: corporate Rescue and liquidation, focusing on the factors influencing outcomes in these processes under the Insolvency and Bankruptcy Code (IBC), 2016. Despite the IBC’s intent to facilitate corporate revival, many cases culminate in liquidation, highlighting a critical discrepancy that warrants analysis. Corporate Rescue aims to rehabilitate distressed companies, allowing them to reorganize debts and continue operations. Strategies such as Company Voluntary Arrangements (CVAs) and pre-packaged administrations are employed to maximize the going-concern value. In contrast, liquidation involves ceasing operations and selling assets to satisfy creditor claims. Key factors influencing the choice between these pathways include the company’s financial viability, stakeholder interests, and regulatory frameworks. The study analyzes landmark cases by reviewing statutory provisions, judicial rulings, and regulatory guidelines.
Findings indicate that while the IBC streamlines insolvency resolution, significant hurdles persist in achieving optimal rescue outcomes, often influenced by judicial interpretations that address statutory gaps. This research contributes to existing literature by offering a nuanced legal analysis of factors affecting Rescue versus liquidation decisions in India’s insolvency regime. The implications extend to policymakers, legal practitioners, and corporate stakeholders, providing insights into refining India’s corporate insolvency framework to align more closely with its intended objectives.
Keywords: Corporate Rescue, Liquidation, Insolvency and Bankruptcy Code (IBC), India, Insolvency Resolution, Creditor Rights, Corporate Restructuring, Financial Distress, Value Maximization, Committee of Creditors, National Company Law Tribunal (NCLT), Judicial Interpretation, Regulatory Framework.
INTRODUCTION
Corporate Rescue and liquidation are two distinct approaches to addressing financial distress in companies. Corporate Rescue, also known as corporate restructuring or turnaround, refers to strategies and mechanisms aimed at reviving struggling businesses and restoring them to financial viability, and it is a primary intervention necessary to avert the eventual failure of the company[1]. These methods typically involve operational changes, debt restructuring, and sometimes management overhauls. The primary goal is to preserve the company as a going concern, maintain employment, and maximize value for stakeholders.
Liquidation, conversely, is the process of winding up a business, selling its assets, and then distributing any proceeds earned to shareholders and creditors. A corporation usually goes through liquidation when its shareholders voluntarily wind it up or the company cannot pay its debts. The company’s dissolution is the outcome of liquidation.
Corporate rescue procedures have been increasingly important in India in the last few years, especially since the Insolvency and Bankruptcy Code (IBC) was introduced 2016. India’s insolvency resolution structure underwent a paradigm change with the passage of the IBC, switching from a debtor-in-possession model to a creditor-in-control strategy. The long-standing problems of long-term bankruptcy processes and poor creditor recovery rates were intended to be addressed by this adjustment.
[1]A. Belcher, Corporate Rescue(Sweet and Maxwell; London, 1997)12