A Tale of Two Legal Toolkits
Last month a Delaware bankruptcy judge signed off on WeWork’s turnaround plan: $4 billion in debt erased, punitive leases jettisoned, and a veteran real‑estate CEO installed to run a leaner co‑working giant. The company that once epitomised excess will keep operating 450 buildings across 37 countries—proof that Chapter 11 remains America’s most underrated industrial-policy instrument.
A week earlier, India’s National Company Law Appellate Tribunal affirmed a lower‑court order to liquidate Go First. After two years of wrangling, there were no rescue investors, no debtor‑in‑possession financing, and—most painfully for the economy—no planes in the sky. In January, the same fate befell Future Retail, once the country’s largest big‑box chain.
These cases expose an uncomfortable truth: India’s Insolvency and Bankruptcy Code (IBC) is evolving, but it still defaults to corporate cremation while the United States reflexively reaches for cardiac paddles.
The Numbers Don’t Lie
Since the IBC’s birth in 2016, 8,175 corporate insolvency cases have been admitted. Of those that concluded, 2,707 ended in liquidation, while only 1,119 found a resolution plan—a ratio of roughly 2.4 companies liquidated for every one revived. Regulators point out that this ratio has improved in recent years, edging closer to parity, yet the headline remains: liquidation is still the statistically probable outcome.
Contrast that with the United States, where roughly two‑thirds of Chapter 11 filings either reorganise or sell as going concerns. A functioning rescue market—DIP lenders, specialised hedge funds, and even the federal government—creates an ecosystem in which failure, though unpleasant, is rarely terminal.
What the U.S. Gets Right
- Debtor‑In‑Possession Autonomy
Chapter 11 leaves existing managers at the helm unless fraud is proven. Familiar leadership stabilises operations and reassures employees and suppliers. - Super‑Priority Rescue Capital
New money automatically jumps the queue in the capital stack. That carrot entices creditors to write fresh cheques—SoftBank did exactly that in WeWork’s plan. - Cram‑Down Power
If one impaired class of creditors says yes, the judge can force hold‑outs to accept. The threat of being overruled encourages negotiation instead of litigation. - Speed with Flexibility
Statutory timelines exist, but judges routinely extend them for deals in sight. Commercial sense trumps calendar fetishism. - Brand Salvage
Bed Bath & Beyond’s shelves are gone, yet its intellectual property and customer lists live on—Overstock paid $21 million for a name that still resonates with shoppers. A brand spared is livelihoods preserved across design studios, logistics firms, and digital‑marketing shops.
Where India’s IBC Still Trips
- Creditors in Command Once a company enters CIRP, the Committee of Creditors (CoC)—not management—calls every shot. Promoters are typically barred from bidding even if they bring industry expertise.
- Funding Vacuum DIP financing enjoys no automatic seniority. Banks, already bruised by defaults, view rescue loans as reputational landmines.
- Tick‑Tock Deadlines The 330-day limit (including litigation) sounds efficient; in practice, it incentivizes lowest-common-denominator auctions just to beat the clock.
- Asset-heavy bias service businesses—airlines, retailers, and ed-tech platforms—lose intangible value quickly. By the time litigation ends, critical assets (e.g., airport slots, domain traffic) have drifted elsewhere.
- Procedural Gridlock Every objection earns a day in court; each day in court erodes going‑concern value.
The result is a market that prizes break-up value over enterprise value. In Go First’s case, lessor battles about aircraft repossession paralyzed any flight restart. In Future Retail, creditors rejected the lone bid because it offered only 5 cents on the rupee—not unreasonable given that shelves sat empty for two years while landlords sued. By the time judges ruled, potential white-knight investors had moved on to greener, faster jurisdictions.
Why This Matters for the Startup Nation
India will register 100,000 officially recognized startups by 2027 if current trends hold. That ecosystem thrives on risk recycling—capital freed from one failed experiment quickly seeds the next. If failure equals liquidation and promoter exile, investors simply price the jurisdiction risk into higher required returns or prefer to incorporate in Singapore and Delaware, even for businesses whose customers live in Bengaluru or Jaipur.
The IBC was rightly designed to end the era of “evergreening” bank loans and wilful defaulters. Yet discipline without redemption becomes deterrence. The goal must be to punish malfeasance, not honest missteps in a volatile market.
Five Reforms for Corporate Intensive Care
- AutomaticPriority for Court-Approved DIP Loans
Brazil’s 2020 reforms provide a blueprint; Article 69‑A ranks rescue capital above legacy secured claims, drawing hedge funds and private‑credit shops into the fray. - Earn‑Back Path for Disqualified Promoters
Instead of a blanket ban, let founders propose plans if they commit at least 10 percent of outstanding dues upfront and secure 75 percent creditor assent. Skin in the game trumps blanket disenfranchisement. - Sector‑Specific ‘Golden Hour’ Protocols
Airlines, hospitals, and digital platforms lose value by the hour. Grant resolution professionals emergencyauthority—subject to CoC oversight—to restart operations before bids are finalised. - Cram-Down Adoption
Amend Section 30(4) to allow the NCLT to confirm a plan if one impaired class approves and dissenters are no worse off than in liquidation. This single change would cut months of creditor brinkmanship. - Real‑Time Performance Dashboard
Mandate the Insolvency and Bankruptcy Board of India to publish monthly data on jobs saved, time elapsed, and recovery percentages. Transparency creates pressure for improvement.
The BRIC Opportunity
If India embraces a rescue‑first mentality, it can spearhead a BRICS Second‑Chance Compact during its 2026 chairmanship: mutual recognition of restructuring plans, cross‑border DIP‑financing liens, and an accredited pool of turnaround specialists. Such cooperation would let, say, a Brazilian private equity fund rescue an Indian logistics start-up, or an Indian conglomerate revive a South African mining supplier—capital recycling within the bloc rather than hemorrhaging to New York and London.
Mindset Over Mechanics
No statute alone keeps companies alive; it takes a culture that values continuity. U.S. judges often describe their job as “saving jobs, not just slicing the pie.” India’s tribunals understandably prioritize creditor recovery, yet long-term creditor value usually depends on preserving going-concern earnings, not scavenging residual scrap.
Consider the symbolism: after WeWork’s exit from bankruptcy, it appointed a 47-year industry veteran as CEO, not an insolvency lawyer. The message to employees and landlords was clear: the company is a business, not a carcass. India’s insolvency professionals, by contrast, are praised for maximizing recoveries—even when that means shuttered factories and vanished jobs.
Conclusion: Build an ICU, Not a Crematorium
India wants to be a $10 trillion economy by the early 2030s. That journey demands risk-taking on a colossal scale—and therefore an equally robust safety net for when bets go wrong. Chapter 11 is not perfect; it occasionally props up zombies. But it recognizes that the cheapest stimulus package on earth is preserving companies that already exist.
The IBC’s next chapter should pivot from punitive liquidation to creative resuscitation. When tomorrow’s decacorn stumbles—whether in space tech, AI chips, or climate hardware—it should find an ICU waiting, not the funeral pyre.
An economy is more than its success stories; it is also how it treats its wounded.