Answer By law4u team
A going concern sale refers to the sale of a corporate debtor as an operational business rather than selling its assets piecemeal. Under the Insolvency and Bankruptcy Code (IBC), the liquidator has the authority to sell the company as a going concern, subject to approval by the adjudicating authority (NCLT). This method often yields better realizations and preserves business value, benefiting creditors and stakeholders by maintaining continuity and avoiding loss from asset breakup.
Sale of Company as a Going Concern by Liquidator
Legal Authority to Sell as Going Concern
Section 32A of the IBC empowers the liquidator to sell the corporate debtor as a going concern during liquidation, with approval from the NCLT.
Advantages of Going Concern Sale
- Preserves business operations and employment.
- Maintains value that might be lost in piecemeal asset sales.
- Attracts buyers willing to pay a premium for operational businesses.
- Simplifies transfer of licenses, contracts, and customers to the buyer.
Process and Approval
- The liquidator proposes a sale plan to NCLT.
- The sale must comply with IBC regulations and aim to maximize value for creditors.
- Public notice and bidding may be conducted to ensure transparency.
- NCLT reviews and approves the sale to protect stakeholder interests.
Effect on Creditors
Proceeds from the going concern sale are distributed according to the waterfall mechanism under Section 53 of the IBC, ensuring fair treatment of secured, unsecured, and operational creditors.
Transfer of Business
The buyer acquires the business including assets, liabilities (subject to agreement), employees, contracts, and licenses to continue operations smoothly.
Example
During the liquidation of XYZ Ltd., the liquidator identifies that selling the entire business as a going concern will fetch a higher value than selling assets individually.
Steps and Outcome:
- The liquidator submits a proposal to the NCLT to sell XYZ Ltd. as a going concern.
- A public bidding process is conducted to attract potential buyers.
- NCLT approves the highest bid after verifying compliance and fairness.
- The buyer takes over operations, preserving jobs and continuing the business.
- Proceeds from the sale are distributed to creditors as per priority under Section 53.
