A company can run usual operations or as a ‘going concern’ even if it is in the process of being wound up in an administered sale, as per order by Principal bench comprising of two judges, NCLAT in the case of M/s Mohan Gems & Jewels Pvt. Ltd., boosting recovery prospects for lenders that want to maximize value on soured loans.

Meaning, that the sale of corporate debtor (borrower) as a going concern during the liquidation process is valid under the Insolvency and Bankruptcy Code (IBC).

In the event of sale of a Going concern business, the “property” being transferred also includes the company’s legal structure. Therefore, the selling of an entity as a continuing concern suggests that the entity will continue to operate in the same manner as it did before the transaction was initiated and retain its current name and branding.

Merits of accounting entities under insolvency proceedings as Going concern?

  • Realization of greater value on sale
  • Avoidance of employee job losses and synergy
  • Larger scope of reviving the business

 What challenges are faced in managing an entity, which is under insolvency proceedings, as a Going Concern:

  • Vendor supply constraints
  • Increase in Cost of Production
  • Working Capital crunch
  • Deteriorating EBITDA margins

Notable companies, where businesses under insolvency proceedings were managed as a Going Concern entity, ultimately emerging as businesses reborn with turnaround in their operational performances:

  • Companies in India:
    • Essar Steel India Limited
    • Ruchi Soya Industries Ltd.
    • Amtek Auto Ltd.
    • Binani Cement Limited
    • Monnet Ispat & Energy Limited 
  • Companies outside India:
    • Apple
    • General Motors
    • Chrysler
    • Marvel Entertainment
    • Texaco

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