Creditor Driven Insolvency Resolution Law – A Review of Intent v/s Practice

Purpose- This paper aims to examine the effectiveness of Insolvency Law in India in addressing cases of corporate distress and enabling them to revive the business through restructuring by passing appropriate resolution as envisaged by the Law. It aims to seek evidence as to whether the ‘creditor driven insolvency resolution’ model has a propensity towards ‘resolution’ or is it driven more towards ‘liquidation’ leading to ‘value erosion.’ Design/Methodology/Approach- The paper is descriptive in nature. The paper studies the practice and impact of the Insolvency and Bankruptcy Code in India. The data reported by Insolvency and Bankruptcy Board of India have been used to examine the Insolvency law in practice. Findings- The author argues that Indian Insolvency Law tends to lean towards ‘Liquidation’ of distressed entity rather than ‘Reorganization’ of the entity against legal wisdom behind insolvency laws to promote revival of the distressed entity. The authors also imprint that increasing instances of withdrawal of admitted cases from IBC is an indicator of distressed entities resorting to informal methods of resolving cases outside IBC. Originality/Value- The paper puts across the dichotomy between ‘intention’ and ‘impact’ of Insolvency law in India. The study highlights deviation of insolvency resolution framework in India from the ‘Evolutionary Theory’ which states that increased dispersion of corporate ownership would lead to increased affinity towards ‘manager driven insolvency regime.’ Practical Implications-This study would be useful to insolvency resolution regulators, insolvency professionals and government to examine the insolvency law framework to improve effectiveness of Insolvency and Bankruptcy Code in practice.