Measuring Going Concern Viability and the Effect of Interim Financing Under the Indian Insolvency and Bankruptcy Code, 2016

Abstract

Abstract India’s insolvency framework mandates preserving viable firms as going concerns, but a critical gap remains – the lack of a standardised approach to assessing a firm’s viability during bankruptcy proceedings, resulting in inefficient allocation of interim finance to insolvent firms. This study sheds light on this issue by examining the performance of 21 firms during insolvency. We find that the absence of a clear viability assessment has led to suboptimal outcomes: viable firms being underfinanced and unviable firms being overfinanced. This has led to value deterioration, as many viable firms were ultimately pushed into liquidation due to insufficient interim financing. As a remedy, the authors propose a periodic viability assessment framework, for collecting and publishing information about the insolvent firm during insolvency proceedings. This would improve transparency and predictability for viable firms seeking interim finance, empowering lenders and investors to make better-informed decisions. By supporting viable distressed firms, this framework could foster a thriving market for distressed debt in India, rescuing valuable companies from the bankruptcy abyss.