End of a Flawed Experiment: IBBI Deletes ‘Sale as a Going Concern’ from Liquidation Framework

End of a Flawed Experiment: IBBI Deletes ‘Sale as a Going Concern’ from Liquidation Framework – A decisive step toward restoring the original spirit of the Insolvency and Bankruptcy Code, 2016 – A Turning Point in India’s Insolvency Framework

On October 14, 2025, the Insolvency and Bankruptcy Board of India (IBBI) officially notified two critical amendments in the Gazette of India:

1. The Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2025

– Notification No. IBBI/2025-26/GN/REG129

– Deletes Regulations 32(e), 32(f), and 32A, which permitted the sale of the corporate debtor as a going concern.

2. The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Sixth Amendment) Regulations, 2025

– Notification No. IBBI/2025-26/GN/REG130

– Deletes Regulation 39C and simplifies related provisions, ensuring that post-CIRP revival mechanisms are fully phased out.

With these deletions, the IBBI has decisively ended one of the most debated provisions in the insolvency ecosystem the concept of “sale as a going concern” in liquidation.

THE BROKEN MACHINE ANALOGY: WHY THIS REFORM WAS INEVITABLE

Imagine a factory machine that has stopped working after years of overuse. Engineers have tried repairs, replaced parts, and even called in specialists. Yet, every time it’s restarted, it breaks down again.

The rational choice is to scrap it for parts and invest in a new one. Instead, the authorities insist on keeping it running pouring in money, assigning new operators, and hoping for a miracle.

That’s what “sale as a going concern” represented within liquidation,  a futile attempt to revive what had already reached the end of its economic life.

Under the Insolvency and Bankruptcy Code, 2016 (IBC), once the Corporate Insolvency Resolution Process (CIRP) fails to yield a resolution plan, liquidation is meant to serve as a terminal and time-bound process not as a second chance for revival.

The IBC was designed with a focus on speed, certainty, and value preservation. The moment a company fails to find a viable resolution plan within the CIRP window, the Code directs that its remaining value be efficiently distributed to stakeholders.

Liquidation, therefore, was never intended to turn into an extended experiment in revival.

Yet, Regulation 32(e) blurred that boundary, creating procedural confusion, market distortions, and unnecessary litigation.

The Legal Contradiction and Its Economic Costs

The Insolvency Law Committee (2020) and the Standing Committee on Finance (2021) had already recommended deleting the provision, stating that liquidation was never meant to function as an “alternative rescue mechanism.”

Empirical evidence supports this position:

Instead of preserving value, going concern sales often prolonged proceedings, inflated costs, and invited litigation. Creditors lost valuable time and money as liquidators sought multiple NCLT interventions in the absence of clear statutory backing.

Time: The Hidden Killer of Value

In insolvency, time is not neutral; it destroys value. Every extra month in liquidation erodes recoveries due to depreciation, administrative costs, and loss of buyer interest.

The going concern option stretched liquidation timelines and emboldened speculative bidders.
Since reserve prices are publicly disclosed, bidders often wait for markdowns, knowing that after each failed auction, prices can drop by up to 10% or 25%.

This strategy led to fire-sale outcomes. For example, in several large cases, including Jet Airways, assets remained unsold for months, ultimately fetching far below initial expectations.

Why Deletion Matters

By deleting these provisions, the IBBI has restored the original sequencing of the IBC:

1. CIRP = Revival and Rescue

2. Liquidation = Efficient Exit and Recovery

The liquidation process is now clearly limited to dismantling and distributing assets, ensuring faster creditor recoveries and cleaner closures.

This change eliminates the “moral hazard” that allowed creditors to rely on liquidation as a fallback plan for revival, undermining the urgency of CIRP. It also closes a regulatory loophole that bidders had exploited through delay tactics and legal appeals.

Reallocating Capital to Create Real Value

Deleting sale as a going concern does not destroy value it redirects it.

When liquidation is swift, capital and labour can flow to enterprises that are genuinely productive, rather than being trapped in the futile resuscitation of failed firms.

In short:

Liquidation is not a hospital ward for dying companies; it is a scrapyard where assets are reborn in more productive forms.

The amendment ensures that India’s insolvency ecosystem remains aligned with its founding principles: speed, finality, and efficiency.

Looking Ahead:

The October 2025 IBBI notifications mark a mature and corrective step in India’s insolvency jurisprudence.
They signal that the Board is listening to market realities, expert committees, and economic logic.

By removing “sale as a going concern,” the IBBI has reaffirmed that:

• Resolution belongs in CIRP.
• Liquidation belongs in closure, and
• Value preservation must never come at the cost of delay and distortion.

Conclusion :

This reform completes the IBC’s evolution from a procedural experiment to a disciplined, market-driven system. It is a reminder that clarity is the greatest form of efficiency and that sometimes, letting go is the only way to move forward.

#IBBI #IBC #Liquidation #CIRP #InsolvencyLaw #LegalReform #EaseOfDoingBusiness #CorporateLaw #PolicyUpdate #FinancialReform