Untangling the Web: Coordinated Insolvency and the Future of IBC

Mahak Goyal*

A Decade of IBC: From Single Debtors to Corporate Ecosystems

In 2016, India took a leap of faith. The Insolvency and Bankruptcy Code, 2016 (“IBC”) was introduced to replace mounting financial stress and sluggish recoveries with one unified, time-bound law. It was brought in to bring clarity to chaos and to ensure financial distress was addressed swiftly, fairly, and with an eye toward value maximisation. For a country like India, which is accustomed to languishing with bad loans, the IBC came as a commitment to speed, certainty, and accountability.

In its early years, the IBC design was that each company in financial distress would go through its own Corporate Insolvency Resolution Process (“CIRP”), that is, one debtor, one proceeding and one resolution plan. This process delivered favourable results and revived the idea that insolvency could be resolved rather than merely endured. This success soon turned into a failure because the assumption that the company is a standalone entity that is unaffected by the fortunes of others no longer fits the modern landscape.

Today, no business operates in isolation. Conglomerates and group entities are woven together through cross-holdings, intercorporate guarantees, and shared management, which means that financial distress in one company often spills into other entities as well, which eventually sets off a chain reaction. There are many examples that exposed this reality, such as the Videocon Industries case, where each and every case was tied together by complex operational and financial links. However, the IBC continues to treat them as separate legal entities, and their proceedings often move on the same lines, which causes duplication of efforts, creates inconsistencies, and erodes the overall value.

Over the past decade, India’s IBC landscape has matured from delay to complexity. The initial hurdle was speed, and now quality is the next one. The issue today is no longer how speedily a company can be resolved, but how intelligently we can deal with the interrelated parties that fall together. The future is coordinated insolvency resolution, that is, arranging interconnected entities to preserve the value, protect the creditors, and maintain justice.

The Case for Coordination – Value, Fairness and Law’s Growing Pains

As India’s insolvency system progressed, the shortcomings in its single-entity approach became more evident. The concept that each entity should be resolved independently was only logical in theory. In practice, it caused complications whenever a group of entities went insolvent at different intervals. Creditors found themselves in a situation of confusion since they had to attend different Committee of Creditors (“CoC”) meetings, deal with overlapping assets and faced conflicting resolution plans at the same time. The case of Videocon Industries was a clear example of this, where 13 companies from the same group filed for bankruptcy simultaneously. It will be possible to have a common Resolution Professional (“RP”), synchronised timelines, and shared information platforms instead of pushing for a quick merger of all entities. Any arrangement that is made should be such that it protects the lenders of a particular company, so that the pooling of unrelated assets does not lead to a significant diminution of their recoveries. To maintain this balance, the judiciary should be used in conflicts, inter-company transactions should be fully disclosed, and valuation standards that are accessible to all should be applied. The objective is to maintain the business’s commercial value while the legal identities of the stakeholders remain unchanged.

The IBC in India is entering its second decade, and it should no longer be a quick method for company resolution but a prudent one. The rapid processing of IBC has been mentioned as one of the reasons for its success, but the future goal is to have a compromise. A diligent and well-timed insolvency framework could set the case in such a manner that the collapse of a company does not implicate the entire structure or result in related companies going down with it. The IBC rules must undergo the shift from a timing battle to an expedition of peace where value, fairness, and cooperation share the same habitat, mirroring the intricacies of the contemporary corporate world. The operations, management, and finances of these entities were so closely intermixed that it would have made little commercial sense to carry out separate processes.

So, the National Company Law Tribunal stepped in and allowed a near substantive consolidation, treating a group as one unit for the CIRP. This reasoning was pragmatic as a joint process will attract better bids and preserve the overall value of the entity. But the major question that lies is how far the court should go in merging legal entities to achieve efficiency?

The tension between value maximisation and stakeholder protection is at the heart of coordinated insolvency. While coordinated insolvency can give us higher recovery by pooling assets and aligning proceedings, it can also dilute the rights of individual creditors who lent to a specific entity.  For example, a lender to one entity may find its recovery reduced if the group assets are merged with loss-making affiliates. The challenge is to balance the economic logic with legal fairness and to recognise interdependence without disregarding separate legal entities.

Globally, this is not a new challenge. The EU’s Insolvency Regulation and the United Nations Commission on International Trade Law Model both acknowledge coordinated insolvency by providing for shared timelines, information and cooperation between insolvency professionals rather than full consolidation. India is also trying to move in this direction as the Insolvency Law Committee’s 2020 report and a discussion paper in February 2025 both proposed a framework for coordinated proceedings, suggesting that the law recognise group linkages and permit an RP in appropriate cases.

Coordination is not about rewriting the foundations of IBC, but about aligning its procedures with commercial reality. Insolvency is never an isolated event but always a chain reaction. To respond effectively, the IBC must look beyond individual companies and view the enterprise as a whole, where the future of each entity shapes the outcome of all others.

The Road Ahead: Crafting a Coherent Future for Group Insolvency

IBC is one of India’s most impactful reforms. It restored creditors’ confidence, introduced time-bound discipline, and helped financially distressed companies through structured processes rather than treating them as a stigma. Contemporarily, India’s corporate market is well-connected, and the IBC must adapt to this new reality, where companies are not islands but a part of complex archipelagos. The next phase of reform must be a coherent framework for interconnected entities, one that can balance speed, value, and fairness in equal measure.

The first step is recognising interconnectedness as a legal and economic fact. In today’s time, businesses operate through multiple entities, subsidies and special purpose vehicles often created for easy compliance with regulatory, tax or operational convenience. They might be legally separate, but they are economically interdependent. A coordinated insolvency must therefore begin with a structured assessment of such linkages, including common control, shared assets, guarantees or cash flow and then the tribunals must determine whether joint proceedings are justified. This approach allows flexibility in addressing distress across the group, while preserving the separate legal identities where it is necessary.

The second method suggested is to have procedural coordination. Instead of requesting the immediate merger of all firms, the system can provide for a common resolution practitioner, coordinated time lines, and shared information platforms. The creditors will be able to make a decision faster and avoid pouring their efforts into doing the same thing twice because of this coordination.  Digital insolvency dashboards, AI-driven mapping of the interrelated companies, and real-time CoC coordination will together make group resolution more efficient and more transparent.

Stakeholder protection must not compromise the coordination effort. The introduction of any framework must necessarily come with the protection of the lenders to specific companies, ensuring that the merging of unrelated properties does not unfairly decrease their recoveries. Balancing these competing interests will entail the involvement of the court, full disclosure of inter-company transactions, and the application of transparent valuation standards. The objective is to preserve the business’s market value while protecting the legal identities of the stakeholders.

India should no longer consider IBC as a temporary solution focused merely on a fast procedure for resolving companies. While IBC’s speed is the factor that has contributed to its success up till now, the future goal must be the achievement of equilibrium. A properly defined and cooperatively functioning insolvency setup can guarantee that when one part of the business goes bankrupt, the entire group or interrelated entities do not collapse with it. The IBC needs to shift its approach from a time race to a search for balance where value, fairness, and coordination prevail, reflecting the complexities of the contemporary corporate world.

*The author is a Third-year B.B.A., LL.B. (Hons.) student at Maharashtra National Law University, Chhatrapati Sambhajinagar.