CS Charu Roopchandani
The landscape of Corporate Insolvency in India has undergone a seismic shift since the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC). IBC, 2016 has replaced a fractured insolvency framework with a consolidated, creditor-friendly, time-bound regime designed to balance the interests of stakeholders and maximise the value of distressed assets.
Prior to the IBC, insolvency and resolution matters were spread across statutes such as the Companies Act, 1956, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – statutes that were protracted, inefficient, and often unfavourable to creditors.
IBC restored creditor confidence and strengthened corporate discipline. However, the world economy of the 2020s is rapidly transforming under the influence of digital technologies, investor focus on Environmental, Social, and Governance (ESG) metrics, and the rise of new-age digital businesses. This evolution poses fresh challenges for insolvency law and practice. The future of insolvency practice will require integration of technology to enhance efficiency, embedding of ESG principles into restructuring strategies, and adaptation of insolvency mechanisms to resolve distress in digital business models.
This article will explore each key dimension of the future of insolvency practice—technology, ESG, and new-age businesses—in detail. We begin by examining the transformative role of technology.
Digital Transformation: Technology as the Fourth Pillar
Technology has gradually become an integral part of our daily lives, to the point where it is nearly impossible to function without it. Had someone predicted a few decades ago that we would be so dependent on technology, few of us would have believed it. A similar transformation is taking place in the realm of insolvency under the Insolvency and Bankruptcy Code (IBC). Digital platforms, artificial intelligence, blockchain, and automated document processing are increasingly reshaping how insolvency proceedings are conducted in India, making the process more efficient, transparent, and data-driven.
The Supreme Court’s insistence on speed, efficiency, and procedural certainty in insolvency proceedings creates fertile ground for technological innovation.
The IBC was originally built on four pillars in the year 2016: the Adjudicating Authority (NCLT), the Insolvency and Bankruptcy Board of India (IBBI), Insolvency Professionals, and Information Utilities (IUs). However, technology is rapidly becoming a silent fifth pillar.
Integrated Insolvency Platforms
The Government of India in the Union Budget 2024-25 has proposed the creation of an integrated digital platform linking the stakeholders such as the Insolvency and Bankruptcy Board of India (IBBI), National Company Law Tribunal (NCLT) and the Ministry of Corporate Affairs (MCA).
The platform aims to:
- automate and standardise insolvency filings,
- facilitate secure digital storage of documents,
- enable real‑time tracking of case status,
- allow automated validation of creditor claims,
- enhance communication among stakeholders.
Such a platform would radically reduce procedural delays that often extend resolution proceedings beyond the statutory timeline. Technology will thus serve as the engine to operationalise the time-bound resolution ethos of the Code.
Artificial Intelligence and Predictive Analytics
AI tools can assist practitioners in:
- analysing voluminous financial data,
- detecting patterns of distress over time,
- predicting litigation outcomes,
- automating document review and due diligence processes.
Under Section 29, the Resolution Professional prepares an Information Memorandum containing financial and operational data of the debtor. AI-driven analytics could enhance the quality, accuracy, and predictive value of these memoranda, enabling creditors to evaluate resolution plans with greater precision.
Furthermore, predictive models particularly the statistical analysis, can play a crucial role in Insolvency and restructuring scenarios. Under Sections 43–51 of the relevant insolvency framework, certain transactions entered into by the corporate debtor prior to insolvency may be classified as preferential, undervalued, or otherwise avoidable. These transactions, if identified and challenged, can increase the pool of assets available for distribution to creditors.
By analyzing historical financial data, transaction patterns, and contextual factors, predictive models can flag transactions that deviate from normal commercial behaviour or exhibit characteristics typical of avoidable transactions. For instance:
- Preferential transactions – payments or transfers favoring one creditor over others can be identified based on timing, amounts, and creditor relationships.
- Undervalued transactions – sales of assets below market value can be detected by comparing transaction values against market benchmarks or historical valuations.
For the Resolution Professional, this data-driven approach provides multiple benefits such as Efficiency, Accuracy, Valuation support and Risk assessment.
Virtual Data Rooms and Remote Participation
Virtual data rooms have already become normative in international insolvency practice. Their adoption in India can ensure that all resolution applicants have equal and secure access to critical documents, satisfying the transparency requirements emphasised in Essar Steel v. Satish Kumar Gupta (2019).
Technology in the form of VDRs can also assist Insolvency Professionals in verifying creditor claims, preparing information memorandum and evaluating resolution plans.
During crises such as pandemics, remote participation in creditor meetings and hearings also enables smoother continuation of resolution processes, preventing unnecessary delays.
Further, every action in the VDR i.e., viewing, downloading, deleting, replacing or printing is tracked, providing a transparent record that helps the RP maintain accountability and prevent unauthorized data leaks.
VDRs enables to protect the sensitive data by using encryption methods, multi factor authentication and it also limit the access to the documents. This is critical for preventing data breaches that could further damage a distressed company’s valuation.
Features like bulk uploading, automated indexing, and search facility can shorten due diligence timelines by 20–40%. This speed is vital for meeting the process’ timelines and maintains the efficiency of the professionals.
Digital Valuation Tools for Intangible Assets
Traditional insolvency valuation focused on tangible assets like property and machinery. However, new-age digital companies derive value from:
- intellectual property,
- customer data,
- platform algorithms,
- network effects.
Automated valuation models that integrate market data, user metrics, and comparable digital company valuations can provide more reliable estimates of intangible asset worth—an essential shift for insolvency practice in the digital economy.
ESG (Environmental, Social, and Governance) and the Future of Insolvency
ESG considerations are no longer peripheral to investment decisions. They are increasingly central to how companies are valued and managed. The future of insolvency practice will require incorporating ESG metrics into resolution planning and execution.
Governance Failures and Insolvency
Governance lapses often precipitate insolvency. Poor transparency, mismanagement, and related-party transactions can result in financial distress. Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta (2018) is a landmark 2018 decision of the Supreme Court of India that interpreted the eligibility criteria for resolution applicants under Section 29A of the Insolvency and Bankruptcy Code (IBC). Hon’ble Supreme Court’s interpretation reflects a governance lens: promoters responsible for financial distress are disqualified from submitting resolution plans unless they cure their default.
This principle aligns with the governance pillar of ESG. It emphasises accountability and protects the integrity of the resolution process. In the future, courts and regulators may develop more robust criteria for assessing governance risk in resolution applicants, potentially integrating independent governance scores or compliance histories into evaluation frameworks.
Social Impact: Stakeholder Protection in a Broader Sense
The social dimension of ESG recognises that insolvency affects not only financial creditors but also employees, communities, suppliers, and consumers. Future insolvency practices may prioritise:
- preservation of employment where viable,
- continuity of essential services,
- sustainable treatment of suppliers and operational creditors.
The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India described the IBC as aimed at balancing the interests of all stakeholders. This interpretive thrust supports a broader social lens in restructuring.
For example, in cases where operational disruption has significant social consequences (e.g., healthcare, energy grids), future insolvency frameworks might incorporate social impact assessments as part of the plan evaluation process, rather than purely financial metrics.
Environmental Liabilities and Restructuring
Environmental obligations—such as cleanup costs and regulatory compliance—can be substantial in sectors like mining, chemical manufacturing, and infrastructure. Under Section 30(2)(e), a resolution plan must comply with all applicable laws. This includes environmental statutes such as the Air (Prevention and Control of Pollution) Act, 1981 and the Environment (Protection) Act, 1986.
In future insolvency practice, resolution plans may be judged on how effectively they:
- identify environmental liabilities,
- allocate funds for environmental remediation,
- propose sustainable operational practices post-resolution.
An emerging model may require environmental risk disclosures as part of the Information Memorandum, enabling creditors to factor environmental costs into valuation and restructuring strategies.
ESG Scores and Investor Participation
Global institutional investors increasingly demand ESG compliance. Distressed companies with poor ESG metrics may attract fewer or low-quality bidders, leading to sub-optimal resolution outcomes. Conversely, bidders with strong ESG frameworks may offer superior long-term prospects.
Future insolvency practice may formalise ESG scoring mechanisms that feed into bid evaluations, thereby aligning resolution outcomes with broader sustainability goals. Such mechanisms could be integrated into regulatory guidelines by the IBBI or be linked with global reporting frameworks like those of the Sustainability Accounting Standards Board (SASB) or the Global Reporting Initiative (GRI).
Insolvency Challenges in New-Age Businesses
The rise of digital and platform businesses presents distinctive insolvency challenges. Unlike traditional enterprises, digital firms often have:
- limited tangible assets,
- high reliance on intellectual property,
- complex interdependencies within ecosystems,
- rapid scalability and volatile cash flows.
These characteristics render traditional liquidation valuations inadequate.
Valuation of Intangible Assets
Digital companies derive value from user data, algorithms, market share, and brand equity. Traditional asset-based valuations under the IBC may understate these intangible assets.
Future frameworks may adopt valuation methodologies that integrate:
- discounted cash flow models,
- option pricing approaches,
- user engagement metrics,
- proprietary technology evaluations.
This shift would require insolvency professionals trained in digital valuation and may lead to specialised panels or accreditation for valuers in the technology sector.
Cross-Border Funding and Insolvency
Many new-age businesses are funded internationally. Cross-border insolvency introduces complexities relating to:
- recognition of foreign proceedings,
- coordination with international courts,
- recovery of assets across jurisdictions.
Although the IBC provides for cross-border insolvency under Sections 234 and 235, uptake has been limited due to the absence of a comprehensive legislative regime. Adoption of the UNCITRAL Model Law on Cross-Border Insolvency would facilitate recognition of foreign proceedings and cooperation between jurisdictions, which is indispensable for global technology enterprises.
Complexity of Capital Structures
Startups and digital firms often operate with multiple layers of equity, preference shares, convertible instruments, and venture capital funding agreements with protective provisions.
Future insolvency practice will need to evolve adaptable frameworks to:
- respect investor rights without impeding restructuring,
- balance unsecured creditors with preferred financiers,
- value convertible instruments in resolution plans.
Managing such complexity may call for regulatory frameworks or judicial criteria to govern tiered capital structures.
Future Outlook
Based on the analysis above, the future of insolvency practice should encompass the following:
√ Institutionalizing Technology
- Mandate electronic filing and digital case management for all insolvency proceedings.
- Develop AI tools for automated claim verification and predictive modelling.
- Create centralized digital repositories for Information Memoranda and creditor communications.
√ Embedding ESG Metrics
- Require ESG risk disclosures as part of the Information Memorandum.
- Include environmental and social impact assessments in plan evaluations.
- Link ESG compliance with access to certain restructuring incentives or refinancing facilities.
√ Adapting to New Business Models
- Establish valuation protocols for intangible and digital assets.
- Facilitate specialised insolvency tracks for startups and platform businesses.
- Promote global cooperation through adoption of international insolvency standards.
√ Judicial and Regulatory Guidance
- The Insolvency and Bankruptcy Board of India should issue guidelines on technology use, ESG integration, and digital asset valuation.
- Tribunals should evolve standards for interpreting IBC provisions in the context of modern business ecosystems.
The Insolvency and Bankruptcy Code, 2016 has dramatically reshaped India’s insolvency regime. Landmark judgments such as Innoventive Industries Ltd. v. ICICI Bank, Swiss Ribbons Pvt. Ltd. v. Union of India, and Essar Steel have defined the contours of a time-bound, creditor-centric, and transparent resolution framework.
However, the 21st century’s business landscape—dominated by digital enterprises, global capital flows, and heightened expectations of sustainability—demands a forward-looking insolvency practice. Future insolvency law will be shaped by technology that enhances efficiency and transparency, ESG considerations that align restructuring with sustainable outcomes, and adaptation to new-age business models that defy traditional valuation and funding norms.
By integrating these dimensions, insolvency practice will not only serve the objective of creditor protection but also become an instrument of economic revival that is efficient, equitable, and aligned with broader societal values.
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