Introduction: From Resolution to Revival—The Missing Capital Link
The Insolvency and Bankruptcy Code, 2016 (“IBC”) was designed to rescue viable businesses through timely resolution. Yet, in practice, many corporate debtors fail not due to lack of operational viability, but due to absence of interim and revival capital during and immediately after the resolution process.
Recent judicial and policy-level discussions around the creation of a Revival Fund under IBC indicate a growing recognition of this gap. The idea is simple in concept but complex in execution:
Can structured revival capital prevent value-destructive liquidations and stalled resolutions?
This article examines the Revival Fund concept from a practitioner’s standpoint, mapping a realistic pathway from proposal to execution.
Why a Revival Fund Is Being Discussed Now
Several structural realities have brought revival funding to the forefront:
- High liquidation rates despite viable underlying assets
- Resolution applicants withdrawing due to lack of working capital support
- Real-estate and infrastructure projects stuck mid-way due to cash-flow starvation
- CIRPs failing due to timing mismatch between operational needs and resolution approval
IBC provides for interim finance, but this is often insufficient, expensive, or unavailable—particularly in stressed sectors. A Revival Fund aims to address this systemic vacuum.
What Is a Revival Fund under IBC?
A Revival Fund is envisaged as a dedicated, professionally managed pool of capital designed to:
- Support viable corporate debtors during CIRP or post-approval phase,
- Bridge funding gaps for completion of projects or restart of operations,
- De-risk resolution plans by ensuring execution liquidity.
Importantly, it is not a bailout mechanism, but a value-preservation tool.
Key Design Principles for an Effective Revival Fund
From a practitioner’s lens, any workable Revival Fund must adhere to the following principles:
1. Commercial Orientation, Not Welfare Logic
The fund must operate on:
- Risk-adjusted returns,
- Defined exit mechanisms,
- Commercial decision-making free from political influence.
Without this, it risks becoming another stressed-asset repository.
2. Clear Eligibility and Entry Triggers
Funding should be linked to:
- Demonstrated operational viability,
- Approved or near-approved resolution plans,
- Measurable revival milestones.
Discretionary or blanket eligibility would undermine discipline.
3. Ring-Fencing and Priority Protection
Funds deployed must enjoy:
- Statutory priority akin to interim finance,
- Ring-fenced usage for specified purposes,
- Protection from retrospective clawbacks.
Without priority assurance, no serious capital will participate.
Practitioner’s Roadmap: From Proposal to Execution
Step 1: Identification of Revival-Eligible Corporate Debtors
The RP, in consultation with the CoC, identifies cases where:
- Core business is viable,
- Distress is primarily liquidity-driven,
- Revival capital can materially alter outcomes.
This assessment must be evidence-based, not aspirational.
Step 2: Structuring the Revival Funding
Funding may take the form of:
- Interim finance with enhanced priority,
- Convertible instruments linked to resolution outcomes,
- Project-specific funding (especially in real estate or infrastructure).
The structure must align incentives of funders, creditors, and resolution applicants.
Step 3: Governance and Oversight Mechanism
Strong governance is non-negotiable:
- Independent investment committee,
- Clear drawdown conditions,
- Periodic milestone-based disbursement,
- Real-time monitoring by RP and lenders.
RPs must act as facilitators—not guarantors—of fund performance.
Step 4: Integration with Resolution Plan
Revival funding must be seamlessly integrated into:
- Resolution plan assumptions,
- Cash-flow projections,
- Implementation timelines.
Plans unsupported by assured execution capital are inherently fragile.
Step 5: Exit and Recovery Framework
The fund’s exit may occur through:
- Refinancing post-resolution,
- Cash-flow based repayment,
- Conversion into equity or structured instruments.
Clear exit clarity is essential for fund sustainability.
Role of Insolvency Professionals: Managing Execution Risk
For Insolvency Professionals, a Revival Fund introduces both opportunity and responsibility:
- Opportunity to preserve value and achieve resolution,
- Responsibility to ensure transparency, compliance, and risk discipline.
Statutory safe harbour for good-faith facilitation will be essential to avoid hindsight scrutiny.
Potential Risks and How to Mitigate Them
Moral Hazard
Mitigated through:
- CoC skin-in-the-game,
- Promoter exclusion safeguards,
- Performance-linked funding tranches.
Misallocation of Capital
Mitigated through:
- Sectoral expertise in fund management,
- Independent viability assessment,
- Judicial review limited to process integrity.
International Perspective: Revival Capital Is Not Novel
Globally:
- US DIP financing supports Chapter 11 resolutions,
- UK restructuring plans incorporate new-money priority,
- Singapore encourages rescue financing through statutory protection.
India’s Revival Fund proposal is therefore an evolution, not an experiment.
Conclusion: Capital Is the Missing Ingredient in Resolution Success
IBC has created a robust legal framework. What it often lacks is timely, risk-tolerant capital to translate resolution plans into operational reality.
A well-designed Revival Fund can:
- Reduce avoidable liquidations,
- Improve resolution success rates,
- Restore confidence among bidders and creditors.
However, its success will depend not on intent, but on disciplined execution, statutory clarity, and professional governance.
From a practitioner’s standpoint, revival funding is not a shortcut—it is a necessary bridge between legal resolution and economic revival.
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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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