- 18-Mar-2025
- Corporate and Business Law
When a company is undergoing insolvency or is under liquidation, its participation in tenders, especially government tenders, becomes a complex issue. While the Insolvency and Bankruptcy Code (IBC) provides a framework for resolving corporate insolvencies, certain eligibility conditions under tender laws may restrict a bankrupt company from bidding for new projects. The situation can vary based on whether the company is in Corporate Insolvency Resolution Process (CIRP) or liquidation, as well as the specific conditions set by the tendering authority.
Public tenders usually require that the company participating be financially stable and capable of fulfilling the terms of the contract. A company under insolvency may face challenges because most tender processes seek to avoid contracting with entities that are financially unstable.
Government tenders often include specific clauses that bar companies undergoing liquidation or insolvency from participating, as their ability to deliver on the contract is uncertain. However, these restrictions may not apply universally, and different contracting authorities may have their own requirements.
During CIRP, the Resolution Professional (RP) takes control of the company and is responsible for managing its operations. While the company is still in the process of restructuring or resolving its debts, it might be allowed to continue participating in tenders, depending on the terms and conditions laid out by the RP.
The RP can continue the company’s operations and apply for tenders if doing so is part of the restructuring plan, provided that the company meets the financial and legal criteria.
If a company has been placed under liquidation, it generally ceases all operational activities, and its assets are liquidated to pay off creditors. As such, it cannot participate in tenders because it is not considered a going concern.
A company under liquidation may also be disqualified from participating in tenders until the liquidation process is completed, or a resolution plan is approved that allows it to continue operations.
If the company successfully emerges from insolvency and its resolution plan is approved by the Committee of Creditors (CoC), it might regain eligibility to participate in tenders. This is particularly true if the resolution results in new investment or a change in management, which improves the company’s financial standing.
In the case of a debt-to-equity swap or the introduction of new capital, the company may be able to qualify for new business opportunities, including tenders.
The decision on whether a bankrupt company can participate in tenders often depends on the tender-specific conditions. For example, a tender issued for a large infrastructure project might exclude insolvent companies from bidding if the terms stipulate that the company must not have any ongoing legal or financial proceedings.
Some tenders may allow insolvent companies to participate if they can demonstrate that they are in the CIRP process and are restructuring their finances to meet the contract requirements. However, this would require the approval of the RP and the Committee of Creditors (CoC).
Prequalification requirements in many tenders assess the financial health of companies bidding for contracts. A company in insolvency may not be able to meet these financial conditions, especially if they are undergoing a resolution process or are not currently generating revenue.
A liquidating company may be unable to meet the financial stability and performance guarantees required by tender authorities, thereby limiting its ability to participate.
Some government policies may specifically exclude insolvent companies from participating in public tenders, especially in sectors that involve significant public interest or sensitive projects.
However, in certain cases, especially if the company is under CIRP, the government or the tender authority might allow participation if the company can prove that it is still able to execute contracts through the intervention of the Resolution Professional or under the new ownership.
A construction company is undergoing insolvency under CIRP but still operates under the control of a Resolution Professional (RP). The company wishes to bid for a government construction tender. The RP assesses that the company has sufficient resources and legal capacity to undertake the project. The company, therefore, submits its bid. The tender authority evaluates the bid based on the company’s ability to deliver and the status of the CIRP, and if the terms are met, the company is allowed to proceed with the bid.
A textile manufacturing company is under liquidation and seeks to participate in a public procurement tender for raw material supply. Since the company is no longer operational and is in the process of liquidating its assets to repay creditors, it is disqualified from the tender process. The liquidator informs the tender authority that the company can no longer fulfill business contracts, resulting in its exclusion from the bid.
A bankrupt company’s ability to participate in tenders depends on its insolvency status and the specific terms of the Insolvency and Bankruptcy Code (IBC). During the Corporate Insolvency Resolution Process (CIRP), a company may still be eligible to participate in tenders if it continues operations under the Resolution Professional's (RP) supervision. However, if the company is in liquidation, it will generally not be allowed to participate in tenders. The tender-specific conditions and eligibility requirements play a significant role in determining whether a bankrupt company can submit bids, with most public procurement processes favoring financially stable entities.
Answer By Law4u Team
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