Resolution Plans vs. Liquidation: Assessing Value Creation under the IBC Framework

In order to optimize value for stakeholders, India's bankruptcy system was reorganized with the implementation of the Bankruptcy and Bankruptcy Code, 2016 (IBC), giving corporate resolution precedence over liquidation. Facilitating a time-bound Corporate Insolvency Resolution Process (CIRP) that guarantees the recovery of troubled companies while defending the interests of creditors is the main goal of the IBC. However, a significant portion of corporate bankruptcy cases still end in liquidation, despite the IBC's emphasis on resolution. This raises questions regarding the efficacy and efficiency of the resolution process. The comparative value generation of resolution plans and liquidation within the IBC framework is critically examined in this study. Through the examination of empirical data from the Reserve Bank of India (RBI) and the Insolvency and Bankruptcy Board of India (IBBI), as well as landmark judicial pronouncements, this paper evaluates whether resolution consistently results in higher recoveries, faster resolutions, and better economic outcomes than liquidation. The results show that whereas liquidation results in far lower recoveries, sometimes less than 10%, resolution programs produce an average recovery rate of 35–45% for financial creditors. Resolution is the recommended option under the IBC since it also contributes to job preservation, economic activity sustainability, and investor confidence. Despite its benefits, cases are frequently forced into liquidation due to CIRP delays, protracted litigation, and a lack of potential settlement candidates. In order to improve India's bankruptcy resolution process, this paper suggests policy changes and analyses the main legal, regulatory, and procedural obstacles preventing resolution plans from succeeding. In order to enhance resolution results and reduce needless liquidations, the study emphasises the significance of bidder engagement, court efficiency, and pre-packaged insolvency processes.