Restructuring vs. Liquidation: Strategic Considerations for Corporate Debtors - Part 2
Legal Framework Governing Restructuring and Liquidation in India
In India, the Insolvency and Bankruptcy Code (IBC) of 2016 provides the legal framework for both restructuring and liquidation. The Corporate Insolvency Resolution Process (CIRP) allows financially distressed companies to propose a resolution plan aimed at restoring viability, with a moratorium protecting them from legal actions during this period.
If no acceptable resolution is found within the specified timeframe (typically 270 days), the company enters liquidation. The IBC emphasizes that liquidation should be a last resort, as highlighted in the Supreme Court’s ruling in Swiss Ribbons Pvt. Ltd. v. Union of India, which reinforced the preference for resolution over liquidation.
Strategic Outcomes: Long-term Prospects
The choice between restructuring and liquidation carries significant long-term implications. Successful restructuring can lead to improved operations, manageable debt levels, and the preservation of jobs, allowing the company to thrive once again. On the other hand, liquidation can result in market disruptions, negatively impacting suppliers and associated businesses. It may also lead to industry consolidation, as competitors acquire the liquidated company’s assets.
Conclusion
Navigating the complex waters of financial distress requires careful consideration and strategic planning. The choice between restructuring and liquidation is not merely a financial decision; it’s one that affects the lives of employees, the interests of creditors, and the future of the business itself. By understanding the implications of each option, corporate debtors can make informed choices that promote long-term sustainability and stakeholder recovery.