Liquidation Regulations: Option of Going Concern Sales to be Axed

In a major development, the Insolvency and Bankruptcy Board of India (IBBI) has proposed amendments to the IBBI (Liquidation Process) Regulations, 2016, to prevent going concern sales of the corporate debtor.

As per the IBBI’s quarterly newsletter for October to December 2024, till December 2024, out of the 851 closed cases, 93 were closed through the sale of the corporate debtor as a going concern under liquidation processes, while 743 were closed by dissolution. Further, the discussion paper pulls up the below-par outcomes in the case of the sale of the corporate debtor as a going concern, with statistics depicting better recovery for creditors through regular dissolutions compared to going concern sales.

The amendment has been considered necessary also in light of the challenges presented by provisions relating to the sale as a going concern which include legal disputes, increased costs, and delays in processes. Legal concerns have also been noted as allowing corporate debtors to be sold as a going concern after the conclusion of the liquidation process would be contrary to the scheme of the Insolvency and Bankruptcy Code, 2016.

In view of the above, the Board has put forward a proposal to delete the provisions pertaining to the sale of corporate debtors as a going concern under liquidation. As to situations where the assets need to be sold together for better realisation, the 2016 Regulations already provide for the slump sale of assets.

The other recommendations contained in the discussion paper dated February 4, 2025, cover proposed amendments to mandate the submission of a statement of affairs by corporate debtors, to empower the committee of creditors to decide on inviting interim finance providers to attend the committee meetings as observers, etc.