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  • Shiv Verma

Escaping the Corporate Grim Reaper - Revival over Liquidation under the IBC

[Shiv Verma is a student at National Law University, Jodhpur.]

The Insolvency and Bankruptcy Code 2016 (IBC) was introduced as an essential tool for the recovery of debts in a streamlined and time-bound manner. With the Insolvency and Bankruptcy Board of India (IBBI) (Liquidation Process) Regulations 2016 (as amended by 28 March 2018 Amendment) (Liquidation Process Regulations), companies could continue through a sale as going concern during a liquidation by the liquidator. However, many issues arose during the revival process at the liquidation stage and in maintaining the company as a going concern due to lack of discernible clarity on the regulations as well as the IBC. On 27 April 2019, the IBBI released a discussion paper on corporate liquidation process along with draft amendments to the Liquidation Process Regulations (Discussion Paper), clarifying the position regarding 'going concern' and addressing pertinent issues of assignment and transfer. This article thoroughly analyses the revival procedure of companies as a going concern, the difficulties faced by them, and makes recommendations for their future implementation.

Revival of companies under IBC

Under the IBC, the revival of the companies is of primal importance. In the landmark case of Swiss Ribbons Private Limited v. Union of India and Others, the Supreme Court of India observed that the primary objective of the legislation is to ensure revival and continuation of the company by protecting it from its own management and liquidation. This view has been reiterated in a plethora of cases, keeping in mind the adverse effects of liquidation on livelihoods of the employees and economic growth of the country. The legal jurisprudence in this regard recognises a business as a going concern if it is capable of ‘sustaining independently’.[1]

The difference between a liquidation and a going concern sale

Liquidation generally marks the end of companies and businesses. It is the stage of maximising the assets of a company and establishing a liquidation estate. All the debts and liabilities to the creditors are realised through the liquidation estate. With the passing of a liquidation order by the authority, the liquidator takes charge of the company’s affairs and the employees are discharged. The existence of the liquidated company is dissolved at the end of the process via dissolution. Retaining or encouraging the growth of the company is simply not the objective of liquidation.

However, the progressive Liquidation Process Regulations allow the companies to sacrifice their arm for their body to survive. Companies undergoing liquidation may escape their imminent dissolution in cases where it is sold intact as a going concern by the liquidator. This way the business and the economic activities of the company survive in the hands of the buyer through a transfer of all assets, liabilities, contracts, licenses etc. In case the company survives, then it will have to adjust to the new structure and conditions or otherwise, it is dissolved immediately, thereby concluding the process of liquidation.

Such a method preserves the value and validity of the contracts, assignments, intellectual properties etc. of the company which would otherwise be reduced to nil in liquidation. Moreover, by selling business assets, the economic activities associated with it (such as production of goods and services, employment, taxation etc.) can be continued. The management of the company may be renewed by the buyer.

Sale as going concern under liquidation

Liquidation signals dire news for the companies. With the appointment of the liquidator, the company’s assets are valued every inch for realising its debts to the creditors. However, if the liquidator feels that the company can be continued as a going concern, he may sell any assets or business of the company to a buyer against a sum of consideration for the satisfactory realisation of the company’s debts.

Regulation 32 of the Liquidation Process Regulations provides this option to the liquidator even after the passing of the liquidation order by the adjudicating authority. The liquidator can sell the assets of the company in a slump sale, sell the company as a going concern (Regulation 32(e)) or sell the business of the company as a going concern (Regulation 32(f)). Some points of difference and similarities as clarified by the Discussion Paper are as follows:

Revival under a scheme of compromise or arrangement

As per Section 230 of the Companies Act 2013, a company can come to a compromise or an arrangement between its creditors and members, or any class thereof. Many schemes for compromise or arrangement include plans for mergers, demergers, acquisitions, slump sale etc. The liquidator is also empowered to file an application to the adjudicating authority for effecting any scheme by harmonising with the shareholders, members, employees and secured and unsecured creditors under Section 230.

The Discussion Paper introduces Regulation 12A for allowing the liquidator to file an application for schemes for compromise or arrangement within 7 days from the passing of liquidation order. This process must be concluded with 9 days. However, the revival process under Section 230 is distinguished from a going concern sale due to the rules regarding voting and passing of a special resolution under the section. Many cases decided by the adjudicating authorities have indicated that the companies must go through the procedure envisaged in Section 230 of Companies Act 2013 on failure of which they can be liquidated as per the Liquidation Process Regulations.

Difficulties likely to arise out of the new regulations

By allowing a recourse to sale as going concern under liquidation, companies may be able to survive their death. However, such a feat is not easy. Some of the difficulties faced under the new regulations and possible solution to them are explained below:

  • The IBBI must clarify the position regarding transferability of contracts, trademarks etc. under going concern sale. Generally, the consent of the contracting party is necessary for all transfers and assignment. Whether such transfers are taking place through contractual changes or as a part of liquidation estate is another moot point requiring answers. Moreover, the transfer of the employees of the company remains a conflicted position as a liquidation order discharges employees under Section 33 of the IBC but a going concern sale reinstates them. Further discussion and legal efforts by the IBBI on these points is much needed.

  • The introduction of Regulation 12A allows delinquent promoters and errant persons to bid for the company through a compromise or arrangement under Regulation 12A. The IBBI has not clarified the applicability of Section 29A of the IBC under this scheme. However, such a scheme may not unattractive if such persons were to pay certain consideration for bidding to rescue the company. This may help in tackling the issue of single or fewer bidders during the resolution process.

  • The Discussion Paper is silent on the retrospective effect of the amendments and remains ambiguous on whether the resolution professional under the corporate insolvency resolution process continue to be the liquidator. In the author’s view, the resolution professional must not continue his duties as a liquidator due to his vested interests in the dissolution in the company and his inability to provide an effective resolution plan for the company. Moreover, the new amendment must have mandated the financial creditors to bear the expenses of the liquidation process to allow it only in cases of rare and substantial default of the company.

  • The IBBI must clarify the position regarding payments and realising debts from the proceeds received under a going concern sale. Presently, the creditors, stakeholders and employees are subjected to Section 53 of the IBC. Moreover, better skilled and experienced liquidators and resolution professional are needed to save the company from piling debts and mismanagement. Such professionals must explore every option to keep the company as a going concern.


While the Discussion Paper exhibits a decent effort on part of the IBBI to resolve pertinent issues under liquidation and going concern sale, much clarity and explanation is required for better implementation of the provisions. Releasing a model timeline for liquidation process can also be a great solution to the increasing number of cases in the CIRP. As time passes, some of the issues may be cleared by the adjudicating authorities, but the IBBI must also adapt itself better to the needs of the time for the objective of the IBC to succeed in its fullest sense.

[1] M/s Indo Rama Synthetics Ltd. v. Spentex Industries Ltd., Company Appeal 762/2009.


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