{"id":5864,"date":"2026-03-19T17:15:24","date_gmt":"2026-03-19T11:45:24","guid":{"rendered":"https:\/\/www.businessupturn.com\/trade-policy\/?p=5864"},"modified":"2026-03-19T15:59:19","modified_gmt":"2026-03-19T10:29:19","slug":"how-they-make-profits-out-of-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.businessupturn.com\/trade-policy\/how-they-make-profits-out-of-bankruptcy\/5864\/","title":{"rendered":"How they make profits out of Bankruptcy"},"content":{"rendered":"

Modern <\/span>insolvency <\/span>law <\/span>is <\/span>built <\/span>on <\/span>a <\/span>compelling <\/span>moral <\/span>premise. <\/span>It <\/span>exists <\/span>to <\/span>rescue <\/span>distressed <\/span>companies, <\/span>maximise <\/span>value <\/span>for <\/span>creditors, <\/span>and <\/span>preserve <\/span>economic <\/span>stability. <\/span>Frameworks <\/span>such <\/span>as <\/span>the <\/span>Insolvency and Bankruptcy Code<\/a>, 2016<\/span><\/span> were <\/span>introduced <\/span>with <\/span>the <\/span>explicit <\/span>objective <\/span>of <\/span>shifting <\/span>economies <\/span>away <\/span>from <\/span>debtor <\/span>protection <\/span>towards <\/span>creditor <\/span>driven <\/span>discipline.<\/span><\/p>\n

Yet, <\/span>as <\/span>insolvency <\/span>regimes <\/span>mature, <\/span>a <\/span>more <\/span>complex <\/span>and <\/span>less <\/span>publicly <\/span>discussed <\/span>reality <\/span>has <\/span>begun <\/span>to <\/span>emerge. <\/span>Insolvency <\/span>is <\/span>no <\/span>longer <\/span>merely <\/span>a <\/span>response <\/span>to <\/span>financial <\/span>distress. <\/span>In <\/span>certain <\/span>cases, <\/span>it <\/span>is <\/span>becoming <\/span>a <\/span>strategic <\/span>instrument <\/span>deployed <\/span>by <\/span>market <\/span>participants <\/span>to <\/span>eliminate <\/span>competition, <\/span>consolidate <\/span>sectors, <\/span>and <\/span>acquire <\/span>assets <\/span>at <\/span>deeply <\/span>discounted <\/span>valuations<\/span>. <\/span>This <\/span>is <\/span>not <\/span>a <\/span>story <\/span>of <\/span>illegality <\/span>in <\/span>the <\/span>conventional <\/span>sense. <\/span>It <\/span>is <\/span>a <\/span>story <\/span>of <\/span>lawful <\/span>process <\/span>producing <\/span>anti <\/span>competitive <\/span>outcomes<\/span>.<\/span><\/p>\n

The <\/span>transformation <\/span>of <\/span>insolvency <\/span>from <\/span>a <\/span>remedial <\/span>framework <\/span>into <\/span>a <\/span>strategic <\/span>tool <\/span>is <\/span>rooted <\/span>in <\/span>its <\/span>design. <\/span>Insolvency <\/span>law <\/span>prioritises <\/span>speed, <\/span>creditor <\/span>control, <\/span>and <\/span>value <\/span>maximisation. <\/span>These <\/span>objectives, <\/span>while <\/span>essential <\/span>for <\/span>efficiency, <\/span>also <\/span>create <\/span>conditions <\/span>in <\/span>which <\/span>distressed <\/span>firms <\/span>become <\/span>targets <\/span>rather <\/span>than <\/span>candidates <\/span>for <\/span>revival<\/span>.<\/span><\/p>\n

Under <\/span>the <\/span>Insolvency and Bankruptcy Code, 2016<\/span><\/span>, <\/span>once <\/span>a <\/span>company <\/span>is <\/span>admitted <\/span>into <\/span>the <\/span>Corporate <\/span>Insolvency <\/span>Resolution <\/span>Process, <\/span>control <\/span>shifts <\/span>from <\/span>management <\/span>to <\/span>a <\/span>resolution <\/span>professional, <\/span>and <\/span>ultimately <\/span>to <\/span>the <\/span>committee <\/span>of <\/span>creditors. <\/span>This <\/span>shift <\/span>is <\/span>intended <\/span>to <\/span>prevent <\/span>value <\/span>erosion. <\/span>However, <\/span>it <\/span>also <\/span>removes <\/span>existing <\/span>promoters <\/span>from <\/span>decision <\/span>making <\/span>at <\/span>a <\/span>critical <\/span>stage, <\/span>often <\/span>leaving <\/span>the <\/span>company <\/span>vulnerable <\/span>to <\/span>acquisition <\/span>strategies <\/span>designed <\/span>by <\/span>competitors <\/span>or <\/span>financial <\/span>investors. <\/span>The <\/span>process, <\/span>therefore, <\/span>does <\/span>not <\/span>merely <\/span>resolve <\/span>distress. <\/span>It <\/span>re <\/span>allocates <\/span>economic <\/span>power<\/span>.<\/span><\/p>\n

In <\/span>practice, <\/span>several <\/span>patterns <\/span>have <\/span>emerged <\/span>that <\/span>indicate <\/span>the <\/span>strategic <\/span>use <\/span>of <\/span>insolvency <\/span>frameworks. <\/span>A <\/span>financially <\/span>stressed <\/span>company <\/span>may <\/span>be <\/span>pushed <\/span>into <\/span>insolvency <\/span>through <\/span>aggressive <\/span>enforcement <\/span>by <\/span>creditors, <\/span>even <\/span>where <\/span>restructuring <\/span>outside <\/span>formal <\/span>proceedings <\/span>may <\/span>have <\/span>been <\/span>viable. <\/span>Once <\/span>admitted, <\/span>the <\/span>company <\/span>enters <\/span>a <\/span>time <\/span>bound <\/span>process <\/span>that <\/span>places <\/span>immense <\/span>pressure <\/span>on <\/span>stakeholders <\/span>to <\/span>accept <\/span>resolution <\/span>plans <\/span>quickly. <\/span>This <\/span>compressed <\/span>timeline <\/span>often <\/span>results <\/span>in <\/span>assets <\/span>being <\/span>sold <\/span>at <\/span>valuations <\/span>significantly <\/span>below <\/span>intrinsic <\/span>worth. <\/span>Competitors, <\/span>private <\/span>equity <\/span>funds, <\/span>or <\/span>asset <\/span>reconstruction <\/span>entities <\/span>then <\/span>acquire <\/span>these <\/span>assets <\/span>through <\/span>the <\/span>resolution <\/span>process, <\/span>effectively <\/span>eliminating <\/span>a <\/span>rival <\/span>while <\/span>expanding <\/span>their <\/span>own <\/span>market <\/span>position<\/span>. <\/span>In <\/span>some <\/span>instances, <\/span>financial <\/span>creditors <\/span>themselves <\/span>may <\/span>have <\/span>aligned <\/span>interests <\/span>with <\/span>potential <\/span>bidders, <\/span>raising <\/span>concerns <\/span>about <\/span>whether <\/span>resolution <\/span>outcomes <\/span>are <\/span>always <\/span>driven <\/span>by <\/span>value <\/span>maximisation <\/span>or <\/span>by <\/span>strategic <\/span>consolidation <\/span>objectives<\/span>.<\/span><\/p>\n

The <\/span>introduction <\/span>of <\/span>pre <\/span>packaged <\/span>insolvency <\/span>mechanisms <\/span>has <\/span>further <\/span>intensified <\/span>this <\/span>debate. <\/span>Pre <\/span>packs <\/span>are <\/span>designed <\/span>to <\/span>enable <\/span>quicker <\/span>resolutions <\/span>by <\/span>allowing <\/span>debtors <\/span>and <\/span>creditors <\/span>to <\/span>negotiate <\/span>a <\/span>plan <\/span>prior <\/span>to <\/span>formal <\/span>admission. <\/span>While <\/span>this <\/span>enhances <\/span>efficiency, <\/span>it <\/span>also <\/span>raises <\/span>questions <\/span>about <\/span>transparency <\/span>and <\/span>competitive <\/span>bidding<\/span>. <\/span>If <\/span>key <\/span>terms <\/span>are <\/span>agreed <\/span>in <\/span>advance, <\/span>the <\/span>scope <\/span>for <\/span>open <\/span>market <\/span>discovery <\/span>of <\/span>value <\/span>may <\/span>be <\/span>reduced, <\/span>potentially <\/span>favouring <\/span>pre <\/span>identified <\/span>acquirers. <\/span>This <\/span>creates <\/span>a <\/span>tension <\/span>between <\/span>procedural <\/span>efficiency <\/span>and <\/span>market <\/span>fairness. <\/span>The <\/span>risk <\/span>is <\/span>not <\/span>merely <\/span>theoretical. <\/span>It <\/span>lies <\/span>in <\/span>the <\/span>possibility <\/span>that <\/span>insolvency <\/span>becomes <\/span>a <\/span>controlled <\/span>transaction <\/span>mechanism<\/span>, <\/span>rather <\/span>than <\/span>a <\/span>genuinely <\/span>competitive <\/span>process.<\/span><\/p>\n

A <\/span>defining <\/span>feature <\/span>of <\/span>the <\/span>Insolvency and Bankruptcy Code, 2016<\/span><\/span> is <\/span>Section <\/span>29A, <\/span>which <\/span>disqualifies <\/span>certain <\/span>categories <\/span>of <\/span>persons, <\/span>including <\/span>defaulting <\/span>promoters, <\/span>from <\/span>submitting <\/span>resolution <\/span>plans. <\/span>The <\/span>provision <\/span>was <\/span>introduced <\/span>to <\/span>prevent <\/span>backdoor <\/span>re <\/span>entry <\/span>of <\/span>errant <\/span>promoters. <\/span>However, <\/span>its <\/span>practical <\/span>effect <\/span>has <\/span>been <\/span>to <\/span>significantly <\/span>narrow <\/span>the <\/span>pool <\/span>of <\/span>eligible <\/span>bidders<\/span>, <\/span>particularly <\/span>in <\/span>sectors <\/span>where <\/span>industry <\/span>expertise <\/span>is <\/span>concentrated <\/span>among <\/span>existing <\/span>players. <\/span>By <\/span>excluding <\/span>promoters <\/span>who <\/span>may <\/span>have <\/span>the <\/span>greatest <\/span>operational <\/span>knowledge <\/span>of <\/span>the <\/span>business, <\/span>Section <\/span>29A <\/span>can <\/span>inadvertently <\/span>strengthen <\/span>the <\/span>position <\/span>of <\/span>external <\/span>bidders, <\/span>including <\/span>competitors. <\/span>While <\/span>this <\/span>may <\/span>enhance <\/span>governance <\/span>standards, <\/span>it <\/span>also <\/span>raises <\/span>the <\/span>possibility <\/span>that <\/span>insolvency <\/span>outcomes <\/span>are <\/span>shaped <\/span>not <\/span>only <\/span>by <\/span>financial <\/span>considerations <\/span>but <\/span>by <\/span>strategic <\/span>exclusion <\/span>embedded <\/span>within <\/span>the <\/span>law <\/span>itself<\/span>.<\/span><\/p>\n

One <\/span>of <\/span>the <\/span>most <\/span>critical <\/span>aspects <\/span>of <\/span>insolvency <\/span>proceedings <\/span>is <\/span>valuation. <\/span>Distressed <\/span>assets <\/span>are <\/span>inherently <\/span>difficult <\/span>to <\/span>price, <\/span>particularly <\/span>within <\/span>compressed <\/span>timelines <\/span>and <\/span>uncertain <\/span>market <\/span>conditions. <\/span>Resolution <\/span>applicants <\/span>often <\/span>factor <\/span>in <\/span>litigation <\/span>risks, <\/span>operational <\/span>disruptions, <\/span>and <\/span>capital <\/span>expenditure <\/span>requirements, <\/span>leading <\/span>to <\/span>bids <\/span>that <\/span>are <\/span>substantially <\/span>lower <\/span>than <\/span>the <\/span>book <\/span>value <\/span>of <\/span>assets. <\/span>Creditors, <\/span>facing <\/span>the <\/span>alternative <\/span>of <\/span>liquidation, <\/span>may <\/span>accept <\/span>these <\/span>valuations <\/span>as <\/span>the <\/span>best <\/span>available <\/span>outcome. <\/span>However, <\/span>from <\/span>a <\/span>market <\/span>perspective, <\/span>this <\/span>results <\/span>in <\/span>systematic <\/span>transfer <\/span>of <\/span>valuable <\/span>assets <\/span>at <\/span>discounted <\/span>prices<\/span>, <\/span>often <\/span>to <\/span>entities <\/span>that <\/span>are <\/span>already <\/span>dominant <\/span>within <\/span>the <\/span>sector. <\/span>Over <\/span>time, <\/span>this <\/span>can <\/span>lead <\/span>to <\/span>increased <\/span>market <\/span>concentration <\/span>and <\/span>reduced <\/span>competition.<\/span><\/p>\n

Adjudicatory <\/span>bodies <\/span>such <\/span>as <\/span>the <\/span>National Company Law Tribunal<\/a><\/span><\/span> and <\/span>the <\/span>National Company Law Appellate Tribunal<\/a><\/span><\/span> have <\/span>consistently <\/span>emphasised <\/span>the <\/span>importance <\/span>of <\/span>timely <\/span>resolution <\/span>and <\/span>commercial <\/span>wisdom <\/span>of <\/span>creditors. <\/span>The <\/span>judiciary <\/span>has <\/span>generally <\/span>refrained <\/span>from <\/span>interfering <\/span>with <\/span>the <\/span>decisions <\/span>of <\/span>the <\/span>committee <\/span>of <\/span>creditors, <\/span>recognising <\/span>that <\/span>financial <\/span>stakeholders <\/span>are <\/span>best <\/span>placed <\/span>to <\/span>assess <\/span>value. <\/span>While <\/span>this <\/span>deference <\/span>enhances <\/span>predictability, <\/span>it <\/span>also <\/span>limits <\/span>scrutiny <\/span>of <\/span>potentially <\/span>anti <\/span>competitive <\/span>outcomes <\/span>embedded <\/span>within <\/span>resolution <\/span>plans<\/span>. <\/span>The <\/span>question <\/span>that <\/span>arises <\/span>is <\/span>whether <\/span>insolvency <\/span>adjudication <\/span>should <\/span>remain <\/span>confined <\/span>to <\/span>procedural <\/span>compliance, <\/span>or <\/span>whether <\/span>it <\/span>should <\/span>engage <\/span>more <\/span>actively <\/span>with <\/span>broader <\/span>market <\/span>implications.<\/span><\/p>\n

A <\/span>striking <\/span>feature <\/span>of <\/span>the <\/span>current <\/span>framework <\/span>is <\/span>the <\/span>limited <\/span>interface <\/span>between <\/span>insolvency <\/span>law <\/span>and <\/span>competition <\/span>regulation. <\/span>While <\/span>combinations <\/span>arising <\/span>out <\/span>of <\/span>insolvency <\/span>proceedings <\/span>may <\/span>require <\/span>approval <\/span>from <\/span>the <\/span>Competition Commission of India<\/a><\/span><\/span>, <\/span>the <\/span>analysis <\/span>is <\/span>often <\/span>conducted <\/span>within <\/span>tight <\/span>timelines, <\/span>with <\/span>a <\/span>focus <\/span>on <\/span>immediate <\/span>market <\/span>impact <\/span>rather <\/span>than <\/span>long <\/span>term <\/span>structural <\/span>changes. <\/span>This <\/span>creates <\/span>a <\/span>regulatory <\/span>gap. <\/span>Insolvency <\/span>proceedings <\/span>can <\/span>facilitate <\/span>acquisitions <\/span>that <\/span>significantly <\/span>alter <\/span>market <\/span>dynamics, <\/span>yet <\/span>these <\/span>outcomes <\/span>are <\/span>not <\/span>always <\/span>subject <\/span>to <\/span>the <\/span>same <\/span>level <\/span>of <\/span>scrutiny <\/span>as <\/span>conventional <\/span>mergers <\/span>and <\/span>acquisitions. <\/span>The <\/span>result <\/span>is <\/span>a <\/span>form <\/span>of <\/span>regulatory <\/span>arbitrage<\/span>, <\/span>where <\/span>insolvency <\/span>becomes <\/span>a <\/span>pathway <\/span>for <\/span>consolidation <\/span>that <\/span>might <\/span>otherwise <\/span>face <\/span>greater <\/span>resistance <\/span>under <\/span>competition <\/span>law.<\/span><\/p>\n

This <\/span>is <\/span>not <\/span>a <\/span>uniquely <\/span>Indian <\/span>issue. <\/span>Jurisdictions <\/span>with <\/span>mature <\/span>insolvency <\/span>regimes, <\/span>including <\/span>the <\/span>United <\/span>States <\/span>under <\/span>Chapter <\/span>11 <\/span>and <\/span>the <\/span>United <\/span>Kingdom <\/span>under <\/span>administration <\/span>procedures, <\/span>have <\/span>witnessed <\/span>similar <\/span>concerns. <\/span>Distressed <\/span>acquisitions <\/span>by <\/span>private <\/span>equity <\/span>funds, <\/span>strategic <\/span>competitors, <\/span>and <\/span>distressed <\/span>asset <\/span>specialists <\/span>have <\/span>become <\/span>a <\/span>defining <\/span>feature <\/span>of <\/span>modern <\/span>insolvency <\/span>landscapes. <\/span>The <\/span>underlying <\/span>pattern <\/span>is <\/span>consistent: <\/span>financial <\/span>distress <\/span>creates <\/span>acquisition <\/span>opportunities, <\/span>and <\/span>legal <\/span>frameworks <\/span>facilitate <\/span>their <\/span>execution<\/span>.<\/span><\/p>\n

At <\/span>its <\/span>core, <\/span>the <\/span>debate <\/span>is <\/span>not <\/span>about <\/span>whether <\/span>insolvency <\/span>law <\/span>is <\/span>being <\/span>misused <\/span>in <\/span>a <\/span>technical <\/span>sense. <\/span>It <\/span>is <\/span>about <\/span>whether <\/span>its <\/span>outcomes <\/span>align <\/span>with <\/span>its <\/span>stated <\/span>objectives. <\/span>If <\/span>insolvency <\/span>leads <\/span>to <\/span>efficient <\/span>resolution <\/span>but <\/span>also <\/span>results <\/span>in <\/span>systematic <\/span>concentration <\/span>of <\/span>market <\/span>power<\/span>, <\/span>then <\/span>the <\/span>framework <\/span>may <\/span>be <\/span>achieving <\/span>financial <\/span>efficiency <\/span>at <\/span>the <\/span>cost <\/span>of <\/span>competitive <\/span>integrity. <\/span>This <\/span>raises <\/span>fundamental <\/span>policy <\/span>questions. <\/span>Should <\/span>insolvency <\/span>law <\/span>incorporate <\/span>safeguards <\/span>against <\/span>anti <\/span>competitive <\/span>consolidation. <\/span>Should <\/span>there <\/span>be <\/span>deeper <\/span>coordination <\/span>between <\/span>insolvency <\/span>and <\/span>competition <\/span>regulators. <\/span>Should <\/span>valuation <\/span>processes <\/span>be <\/span>subjected <\/span>to <\/span>greater <\/span>transparency.<\/span><\/p>\n

Insolvency <\/span>law <\/span>today <\/span>sits <\/span>at <\/span>the <\/span>intersection <\/span>of <\/span>finance, <\/span>law, <\/span>and <\/span>market <\/span>structure. <\/span>It <\/span>is <\/span>no <\/span>longer <\/span>merely <\/span>a <\/span>mechanism <\/span>for <\/span>dealing <\/span>with <\/span>failure. <\/span>It <\/span>is <\/span>a <\/span>tool <\/span>that <\/span>shapes <\/span>who <\/span>survives, <\/span>who <\/span>exits, <\/span>and <\/span>who <\/span>ultimately <\/span>controls <\/span>the <\/span>market<\/span>. <\/span>The <\/span>danger <\/span>lies <\/span>not <\/span>in <\/span>overt <\/span>abuse, <\/span>but <\/span>in <\/span>subtle <\/span>transformation. <\/span>When <\/span>a <\/span>framework <\/span>designed <\/span>for <\/span>rescue <\/span>begins <\/span>to <\/span>facilitate <\/span>strategic <\/span>elimination, <\/span>the <\/span>line <\/span>between <\/span>insolvency <\/span>and <\/span>strategy <\/span>becomes <\/span>increasingly <\/span>difficult <\/span>to <\/span>draw. <\/span>The <\/span>question <\/span>is <\/span>no <\/span>longer <\/span>whether <\/span>bankruptcy <\/span>law <\/span>can <\/span>resolve <\/span>distress. <\/span>It <\/span>is <\/span>whether <\/span>it <\/span>is <\/span>quietly <\/span>being <\/span>used <\/span>to <\/span>decide <\/span>the <\/span>winners <\/span>of <\/span>the <\/span>market <\/span>itself<\/span>.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Modern insolvency law is built on a compelling moral premise. It exists to rescue distressed companies, maximise value for creditors,\u2026<\/p>\n","protected":false},"author":442,"featured_media":5867,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[61],"tags":[167,3118,3120,3119],"class_list":["post-5864","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-premium","tag-competition-commission-of-india","tag-insolvency-and-bankruptcy-code","tag-national-company-law-appellate-tribunal","tag-national-company-law-tribunal"],"reading_time":"6 min read","_links":{"self":[{"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/posts\/5864","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/users\/442"}],"replies":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/comments?post=5864"}],"version-history":[{"count":2,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/posts\/5864\/revisions"}],"predecessor-version":[{"id":5870,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/posts\/5864\/revisions\/5870"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/media\/5867"}],"wp:attachment":[{"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/media?parent=5864"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/categories?post=5864"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.businessupturn.com\/trade-policy\/wp-json\/wp\/v2\/tags?post=5864"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}