Narrowing Value Maximisation: The Omission of Going Concern Sales

[Abhibhav and Aarav are students at Gujarat National Law University.]

On 14 October 2025, the Insolvency and Bankruptcy Board of India (IBBI) notified the IBBI (Liquidation Process) (Second Amendment) Regulations 2025 (Liquidation Regulations), marking a significant shift in the country’s insolvency landscape. Released based on a February 2025 discussion paper titled ‘Streamlining Processes under the Code: Reforms and Enhanced Efficiency and Outcomes’, the new amendment makes several changes with respect to provisions governing the sale of a corporate debtor (CD) as a going-concern during liquidation.

A sale as a going-concern means transferring the whole of a business as a running enterprise rather than the sale of individual assets. In practice, this approach lets the business continue without interruption under new ownership.

Although intended to streamline the liquidation process and address perceived procedural inefficiencies, the omission gives rise to important questions concerning the IBBI’s understanding of value maximization within the liquidation framework. This piece examines the rationale behind the change, presents a critique on the IBBI’s approach, and analyses its overall implications on the liquidation process.

What Has Been Omitted?

First, clauses (e) and (f) are omitted from Regulation 32 of the Liquidation Regulations which allowed the sale of a CD or its business as a going concern, thereby leaving the liquidator with only four options- to sell the assets on a standalone basis, in a slump sale, collectively as a set, and in parcels. 

Second, Regulation 32A, which governed the sale of a CD as a going concern, has also been omitted. Under the provision, the liquidator was required to attempt a sale under clauses (e) and (f) of Regulation 32 where the committee of creditors (CoC) so recommended, or where the liquidator independently formed the opinion that such a mode of sale would maximize the value of the CD.

Third, the CoC’s power to recommend that the liquidator first explore the sale of the CD or its business as a going concern under Regulation 39C of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016 (Insolvency Regulations) has also been omitted. 

The Discussion Paper

The discussion paper inter alia relied upon the Insolvency Law Committee’s February 2020 Report (ILC Report). The ILC Report noted that liquidation is envisaged as the “state the entity enters at the end of an IRP, where neither creditors nor debtors can find a commonly agreeable solution by which to keep the entity as a going concern”, thereby implying the inability of the CD to be continued as a going concern once it enters liquidation.

The paper justified its stance by citing data, showing that creditors recovered only 2.4% through going concern sales (constituting 75% of liquidation value), but 3.7% via regular dissolution (constituting 101% of liquidation value), thereby indicating no additional value preservation advantage compared to regular dissolution.

Moreover, maintenance of the CD as a going concern during liquidation has increased costs, more so when the debtor has ultimately not been sold. Further, it has been noted that liquidators often file applications for approval of sale of the CD seeking various reliefs from the Adjudicating Authority which have not been contemplated in the Insolvency and Bankruptcy Code 2016 (IBC). All of these have led to prolonged legal disputes, increased costs, and delays in completion of the process.

Reserve Price Disclosure and Strategic Bidding

A key issue highlighted in the discussion paper is that the reserve price during a going concern sale bid is publicly known from the first auction which allows bidders to anticipate price reductions in subsequent auctions, leading to strategic delays in bidding and ultimately resulting in lower realizations, often below the liquidation value.

Such a delay raises the cost incurred in maintaining the CD, and with the passage of time, the commercial viability of the business rapidly declines. This has resulted in prolonged delays in processes and lower recoveries for the creditors, in tandem with the recovery data cited in the discussion paper.

It is, however, pertinent to note that while Regulation 35 of the extant Liquidation Regulations requires the Liquidator to conduct a valuation of the CD, nothing in the regulation obligates the Liquidator to publicly disclose the reserve price. The reserve price is typically disclosed in liquidation auctions to ensure transparency and maintain confidence in the process. Since the reserve is based on valuation reports, making it public reassures stakeholders that the asset will not be sold below a defensible benchmark. It also reduces allegations of arbitrariness or undervaluation and helps insulate the liquidator from post-auction challenges. Hence, this practice has become embedded as part of a standard e-auction procedure under the liquidation framework.

 A Balanced Approach

However, a more efficient solution to the issue is a procedural one, whereby the liquidator may explore the option of sale at an undisclosed reserve price. The actual process of the auction would essentially be the same, with the only difference being that of not disclosing the reserve price and instead disclosing a different price – a ‘base price’.

This base price would be a certain percentage of the actual reserve price (based on valuation) at which price the bidding must commence. This would align with the reserve price objective of ruling out frivolous participants. At no stage of the auction would the reserve price be disclosed, it shall only serve as a benchmark for the liquidator to gauge the success of the auction.

In practice, the auction notice may specify the base price at say - 80% or 90% of the reserve price. This base price would be disclosed and would function as the minimum opening bid, ensuring that the process does not begin at an absurdly low bid. The undisclosed reserve price would sit above this base as the internal threshold for acceptance. Here, because bidders know only the base price (and not the actual reserve price), they are incentivised to bid competitively based on their own valuation of the CD rather than merely inching past a known minimum, which can help push bids upward. If, however, the highest bid at the end of the auction does not meet the confidential, undisclosed reserve, the liquidator may declare the auction unsuccessful and either revise the reserve price in accordance with the regulations or conduct a fresh auction, since the reserve price anyway remains a binding condition for concluding the sale.

This approach would neutralise bidders’ incentives to strategically prolong the auction process in order to secure the CD at or near the reserve price, while also allowing for more robust price discovery through market forces.

The Cost of Exclusion

By completely omitting the provision of selling the CD as a going concern, the omission challenges the two basic tenets of the insolvency law: value maximization and commercial wisdom of the CoC. While the discussion paper attempts to provide data to justify the former, it fails to take the following implications of the same into account.

• First, that a going concern sale prevents the erosion of goodwill acquired by the CD while also preserving employment. The latter, as a matter of fact, was identified as a significant advantage of the mechanism in the same ILC Report cited by the discussion paper.

• Second, that the now omitted Regulation 39C of the Insolvency Regulations, allowed the CoC to recommend that the liquidator first explore the sale of the CD as a going concern if liquidation was ordered under Section 33 of the IBC. The Supreme Court, in K Sashidhar v. Indian Overseas Bank and Others (2019), followed by multiple similar judgements, gave primacy to the ‘commercial wisdom’ of the CoC, holding that the role of Adjudicating Authorities is strictly limited to ensuring that the resolution plan complies with Section 30(2) of the IBC.

The aforesaid principle has been in force since 2019 and is rooted in the belief that the CoC is the best judge of ascertaining the commercial viability of a business. The erstwhile Regulation thereby rightfully allowed the CoC to recommend a going-concern sale to a liquidator, since it was in the best position to ascertain the viability of a business, taking all factors into account. Stripping them of this power attacks the very principle of commercial wisdom and by extension, challenges an established precedent.

Moreover, the ILC Report also admitted that as the fee of the liquidator, in some cases, is linked to the total amount realized and distributed during liquidation, the liquidator is incentivized to choose the most value maximizing mode of liquidation.

Conclusion

The omission of going concern sales aims to enhance the efficacy of the resolution process by limiting the assessment of commercial viability to the corporate insolvency resolution process stage, while keeping the liquidation process limited to dissolution. However, it fails to take account of the implications of the same, such as the loss of goodwill and employment. The recovery data comparison highlighted in the discussion paper, which inter alia stemmed from the disclosure of reserve price during auctions could have been corrected by procedural tweaks in practice, such as by adopting the base price approach highlighted above.

The IBBI has seemingly adopted a very narrow interpretation of value maximization by limiting a corporate debtor’s viability assessment to the resolution stage. A more nuanced liquidation framework in this regard is the need of the hour, instead of a categorical exclusion.