IBBI proposes end to ‘Going Concern’ sales in liquidation for faster resolutions
The Insolvency and Bankruptcy Board of India (IBBI) has proposed to eliminate the provision allowing sale of corporate debtors (CD) as a going concern under Liquidation Regulations. This move is aimed at streamlining the liquidation process, reducing legal disputes, and accelerating case resolutions.
Why the change?
The decision follows observations that going concern sales have consistently yielded lower recoveries compared to direct dissolutions. Data reveals that creditors recovered only 2.4% through going concern sales (75% of liquidation value), whereas regular dissolution provided a higher recovery of 3.7% (101% of liquidation value). The findings suggest that going concern sales do not offer any added value preservation advantage.
Moreover, the requirement to maintain a corporate debtor as a going concern during liquidation escalates costs, even when a sale is unlikely. This results in liquidators seeking various reliefs from the Adjudicating Authority, despite the fact that the IBC does not mandate going concern sales. These legal interventions lead to prolonged disputes, higher expenses, and extended resolution timelines.
Addressing strategic bidding delays
Another major challenge with going concern sales is bidder behavior during auctions. Since the reserve price is publicly disclosed in the first auction, bidders often anticipate price reductions in subsequent rounds, leading to strategic delays in bidding and lower overall realizations—often falling below liquidation value.
Shift to slump sales for better realization
IBBI has clarified that liquidators will still be able to conduct slump sales, where assets of the corporate debtor are sold together to maximize value. This ensures that valuable assets can still be sold collectively, without the inefficiencies of maintaining an entire distressed company as a going concern.
By removing the option for going concern sales, the proposed amendment aims to enhance creditor recoveries, prevent delays, and improve overall efficiency in liquidation proceedings.
Also See: For success of sale as Going Concern under liquidation, more process rationalisation needed
