Value Destruction and Wealth Transfer Under the Insolvency and Bankruptcy Code, 2016

Abstract

AbstractIndia experienced a major structural change with the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC). Since then, India’s ranking under the Insolvency head in the World Bank Group’s Doing Business report has sharply risen from 136 to 103. India was also awarded the GRR Award for the Most Improved Jurisdiction in restructuring and insolvency regime. Yet, the IBC has also raised two important concerns—the value destruction problem and wealth transfer problem. This article applies theoretical concepts from the law and economics literature on insolvency to identify the sources of these two problems in insolvency law. It then applies these theoretical concepts to the IBC to identify the potential sources of these two problems in the law. Indian policymakers need to revisit some of the fundamental legislative design choices embedded within the IBC to successfully address these problems.