India's IBC Crisis: Revival Lost? Why Companies Are Now Just Being Sold Off!

Author

Satyam Jha | Whalesbook News Team

Detailed Coverage:

The Insolvency and Bankruptcy Code (IBC) in India was envisioned as a transformative legal framework to manage business failures by promoting revival and renewal, rather than just winding them down. It aimed to create a market where entrepreneurs could propose innovative strategies to restore distressed companies' health and long-term viability. However, the article argues that the focus has shifted from 'revival' to 'recovery,' turning the resolution process into an auction for assets.

Originally, financial creditors were empowered to lead restructuring efforts, prioritizing the company's rehabilitation. But in practice, they are increasingly acting like operational creditors, seeking immediate closure and cash rather than engaging in necessary debt restructuring. This means companies with potential for revival are often sold off, while economically obsolete ones might find buyers interested only in salvage value. This trend leads to distributive outcomes (value shifting to immediate buyers) rather than regenerative ones (value creation through restructuring).

Impact This shift could significantly dampen investor confidence in the efficacy of the IBC for long-term value creation. It suggests that the entrepreneurial spirit intended to drive turnarounds is being overshadowed by a short-term, asset-focused approach. This may lead to fewer successful business reconstructions and an increase in liquidations, ultimately representing a loss of national wealth and productive potential. The IBC's core purpose of turning distress into an opportunity for building a stronger future is being jeopardized. Rating: 8/10

Difficult Terms: Insolvency: A state where a person or company cannot pay their debts. Bankruptcy: A legal process for individuals or businesses that cannot repay their outstanding debts. Resolution Plan: A formal plan presented to creditors and the court detailing how a distressed company will be revived and its debts managed. Liquidation: The process of selling a company's assets to pay off its debts, leading to the closure of the business. Financial Creditors: Lenders like banks or financial institutions who have a financial stake in the company. Operational Creditors: Entities to whom the company owes money for goods or services provided, such as suppliers or employees. Haircut: The amount of debt that creditors agree to forgo (not get paid back) as part of a debt restructuring or resolution plan.