India to eliminate bankruptcy provision for quicker liquidations

India's bankruptcy rule is set for a major change. A proposal aims to end the option of liquidating companies as "going concerns." This means businesses could continue to operate while settling debts. However, lawyers argue that this rule has led to many problems. They say it only encourages lawsuits and delays the liquidation process, which hurts asset values. The Insolvency and Bankruptcy Board of India (IBBI) suggested removing this clause in a discussion paper released in February. The goal is to speed up the liquidation process and improve recovery for creditors. Currently, only 13.8% of companies entering the Insolvency and Bankruptcy Code (IBC) see successful resolutions. In contrast, a significant percentage—about 33.1%—ends in liquidation, mainly involving older, failing businesses. Data shows that the recoveries are better when companies are dissolved rather than kept running. For example, recoveries from regular bankruptcies have been higher compared to those where the company was kept as a going concern. Experts believe that selling assets separately could lead to higher bids and better recovery outcomes. However, not everyone supports the change. Some legal experts argue that selling a business as a whole might generate more value, especially in industries where operational continuity is vital, like aviation and real estate. They caution that dismantling a business could make it harder to find buyers for specific assets. Critics of the going concern option point out instances of misuse. Some bankrupt business owners have exploited this clause to buy back their companies at low prices while bypassing creditors. Ending this rule could lead to more transparent bidding processes, according to some experts. In conclusion, the proposed changes to India's bankruptcy rule aim to streamline liquidation and increase creditor recovery. While there are concerns about potential losses in some sectors, many believe it will lead to better outcomes overall.