Value Maximisation Under The IBC: Myth, Reality, And The Problem Of Haircuts
Gracy Jain, LLM, Amity University Noida
ABSTRACT
The Insolvency and Bankruptcy Code, 2016 was introduced as a comprehensive legal framework aimed at ensuring timely resolution of insolvency and maximisation of the value of assets. A key objective of the Code is to enhance recovery for creditors through a structured and efficient insolvency resolution process. However, in practice, the resolution of distressed assets has frequently resulted in substantial “haircuts,” wherein creditors accept significantly reduced amounts against their admitted claims. This phenomenon raises critical questions regarding the effectiveness of the IBC in achieving its objective of value maximisation. While such haircuts are often justified within the framework of creditor autonomy and the doctrine of commercial wisdom, their magnitude in several cases suggests potential inefficiencies in the insolvency process. This paper critically analyses the concept of haircuts under the IBC by examining its legal framework, judicial interpretation, and economic implications. It evaluates whether haircuts represent a pragmatic compromise inherent in insolvency resolution or indicate a structural failure in achieving optimal recovery outcomes. The study further identifies key factors contributing to high haircuts, including delays, lack of competitive bidding, and institutional constraints. The paper concludes by proposing reforms aimed at strengthening valuation mechanisms, enhancing transparency, and improving institutional efficiency to ensure that the objective of value maximisation is more effectively realised.
Keywords: Insolvency and Bankruptcy Code, Haircuts, Creditors’ Rights, Value Maximisation, Committee of Creditors, CIRP.
