IBBI Amendment Removing Going Concern Sale During Liquidation
The decision by the Insolvency and Bankruptcy Board of India in October 2025 to remove the option of selling a company as a going concern during the liquidation process represents a significant pivot in how India handles corporate distress. Historically, the Insolvency and Bankruptcy Code was designed with a clear distinction between the resolution phase, which aims to keep a company alive, and the liquidation phase, which traditionally aims to dissolve it. However, over time, the introduction of the “going concern” sale during liquidation blurred these lines, effectively turning the liquidation process into a second attempt at a rescue mission.
The recent amendment to the regulations formally omits this path, grounded in the legal realization that keeping a terminally ill company on life support often does more harm than good to the overall economy and the creditors involved.
Resolution vs Liquidation Under the Insolvency and Bankruptcy Code
| Process Stage | Primary Objective | Traditional Approach |
|---|---|---|
| Corporate Insolvency Resolution Process (CIRP) | Revive and continue the business | Find investors or buyers to rescue the company |
| Liquidation | Dissolve the company and distribute assets | Sell assets and repay creditors |
Justice Delayed Is Justice Denied in Commercial Law
Evaluating this shift through the lens of the legal maxim “justice delayed is justice denied” provides a strong justification for the amendment. In the realm of commercial law, justice for creditors is defined by the timely return of their capital so it can be redeployed into more productive ventures.
When a liquidator attempts a going concern sale, the process frequently becomes mired in complexity, as potential buyers often demand various legal reliefs and concessions that the liquidation framework was never meant to provide.
Problems With Going Concern Sales During Liquidation
- Prolonged litigation over concessions and reliefs.
- Strategic bidding by investors waiting for lower auction prices.
- Multiple auction rounds that delay resolution.
- Depreciation of assets over time.
- High administrative costs to maintain operations.
This leads to prolonged litigation and “strategic bidding,” where investors wait for multiple rounds of auctions to drive the price down. By the time a sale is finally concluded, the assets have often depreciated significantly, and the administrative costs of maintaining the business have eaten away at the remaining value.
Consequently, the Board found that this method was simply less effective in terms of recovery compared to a straightforward sale of assets, proving that a slow, uncertain process often results in a less just outcome for everyone involved.
Encouraging Creditor Vigilance
Furthermore, this decision reinforces the principle that the law should assist those who are vigilant about their rights. The Insolvency and Bankruptcy Code provides a generous window during the Corporate Insolvency Resolution Process for creditors to find a buyer and save the business.
By removing the safety net of a going concern sale during the later liquidation stage, the law now places a heavier burden on the Committee of Creditors to be proactive.
Responsibilities of Creditors Under the Amended Framework
- Act proactively during the Corporate Insolvency Resolution Process.
- Identify potential buyers early in the resolution phase.
- Avoid reliance on liquidation as a secondary rescue mechanism.
- Ensure timely decision-making to maximize asset value.
They can no longer “sleep on their rights” during the initial resolution phase with the hope of a back-door rescue later on.
Finality and Certainty in the Liquidation Process
This brings a much-needed sense of finality and legal certainty to the process. While some may argue that this approach is cold toward the employees or the brand of the failing company, the overarching legal philosophy here is that a swift and orderly dissolution is more beneficial for the market than a lingering, expensive failure.
By prioritizing speed and the clean distribution of assets, the amendment ensures that the liquidation phase stays true to its original purpose: providing a definitive and timely exit for non-viable corporate entities.
Possible Impact Of This Change On The Specific Legal Duties And Liabilities Of A Liquidator
The removal of the option to sell a company as a going concern during the liquidation process has profound implications for the duties and liabilities of a liquidator. Previously, a liquidator often functioned as a quasi-resolution professional, tasked with the complex dual responsibility of winding down the legal entity while simultaneously trying to manage and market it as an active, functioning business. This often required the liquidator to seek specialized legal reliefs from the tribunal to ensure the buyer could take over the business without the baggage of past liabilities.
Streamlining Of Liquidator’s Role Under The 2025 Amendment
Under the new 2025 amendment, the liquidator’s role has been significantly streamlined and refocused on the core task of asset realization. Instead of attempting to preserve a failing enterprise through an extended and often futile rescue mission, the liquidator is now primarily responsible for the efficient sale of individual assets, sets of assets, or clusters through methods like slump sales and auctions.
Reduction In Operational Liability Risks
This clarity reduces the professional’s exposure to the legal liabilities that often arose from managing a business’s ongoing operations, such as handling new employee claims or maintaining operational licenses, which frequently led to disputes and stalled the liquidation process.
- Reduced involvement in day-to-day business operations.
- Lower exposure to employee-related claims during continued operations.
- Fewer disputes related to operational licenses and compliance obligations.
- Greater focus on asset realization rather than business management.
Enhanced Oversight By Committee Of Creditors
Furthermore, the amendment introduces a much more robust system of oversight that shifts significant decision-making power from the liquidator to the Committee of Creditors. Historically, the liquidator was required to consult a Stakeholders’ Consultation Committee, but its advice was not strictly binding, leaving the liquidator with a high degree of discretionary power and the associated legal risk if those decisions were later challenged. Now, the Committee of Creditors that oversaw the initial resolution phase remains active to supervise the liquidation process as well.
Change In Decision-Making Structure
This committee now has the explicit authority to propose or even replace the liquidator, and their approval is required for key commercial decisions. This change transforms the liquidator from an independent decision-maker into a professional who must act under the direct supervision and commercial wisdom of the creditors.
| Aspect | Earlier Framework | After 2025 Amendment |
|---|---|---|
| Decision-Making Power | Higher discretionary authority of the liquidator | Greater supervision by the Committee of Creditors |
| Consultation Body | Stakeholders’ Consultation Committee (non-binding advice) | Committee of Creditors with stronger authority |
| Replacement Of Liquidator | Rare and complex process | Committee can propose or replace the liquidator |
| Commercial Decisions | Largely liquidator-driven | Require creditor oversight and approval |
Impact On Liability And Accountability
While this reduces the liquidator’s individual liability by sharing the burden of commercial judgment with the creditors, it also increases their administrative accountability. They are now strictly bound by tighter timelines, typically limited to a few hundred days, ensuring that the process does not linger.
- Shared commercial responsibility with creditors.
- Stricter adherence to statutory timelines.
- Greater administrative accountability.
- Faster liquidation outcomes.
This new framework ensures that the liquidator is focused on the swift return of value, reinforcing the legal principle that the primary goal of liquidation is finality and the distribution of proceeds rather than an open-ended attempt at corporate revival.
Way Forward: Opportunities Ahead
Moving forward, the landscape of corporate insolvency in India will require a significant shift in the mindset of all stakeholders involved, from creditors to legal professionals. The primary focus must now return to the “resolution window” as the only viable opportunity for business revival.
Creditors can no longer afford to be passive observers during the initial stages of insolvency, as the amendment removes the safety net of a going concern sale during liquidation. This creates a much-needed urgency for the Committee of Creditors to be more decisive and creative in finding buyers early on. If a business is truly viable, its rescue must happen within the strict timelines of the resolution process.
- Creditors must actively participate during the resolution phase.
- Early identification of potential buyers becomes critical.
- Greater urgency in decision-making by the Committee of Creditors.
- Focus on timely revival within the resolution process.
Legal and financial advisors will also need to adapt by prioritizing the swift valuation and auctioning of individual assets once liquidation begins, rather than spending months navigating the complexities of trying to sell a failing entity as a whole. This transition will likely lead to a more disciplined market where only the most efficient and prepared participants succeed.
Conclusion
In conclusion, the decision to omit the going concern sale is a bold step toward reinforcing the fundamental integrity of the Insolvency and Bankruptcy Code. By acknowledging that a slow recovery is often worse than a fast dissolution, the regulatory framework has aligned itself with the economic reality that capital must remain fluid to be useful.
While the change may seem to prioritize the interests of secured creditors over the potential survival of a brand or its workforce, it ultimately serves the greater good by preventing the accumulation of “zombie” companies that drain resources without producing value.
In the world of insolvency, finality is a form of justice. By choosing clarity over complexity and speed over sentiment, the law ensures that failure is dealt with decisively, allowing the economy to move forward without the weight of unresolved corporate distress.
