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  • Writer's pictureYogita Agarwal

Can a company enable sale of business as a going concern during liquidation?

The reasons and events due to which a company goes into liquidation does not necessarily mean that business itself was not viable. It may have so happened that the company became insolvent due to factors like weak administration and management, unavailability of workforce. The motive of the Insolvency and Bankruptcy Code is not to end the business, but the business entity. Hence, in order to keep going viable and business profitable, the code enables GOING CONCERN SALE in liquidation.

A company can run its business as a going concern until it is dissolved. Liquidation and dissolution are two different terms but related terms. Liquidation or winding up is a legal term where company assets are realised and the proceeds are used to pay off liabilities,debts and claims of the company whereas Dissolution is last stage where company loses its existence and its name has been struck off from Registrar of Companies In a going concern sale, the company as a legal entity is considered as a part of liquidation estate and all assets of the company are part of liquidation estate. Going concern sale is considered most appropriate method because it results in maximization of value of assets of company . A company may have multiple line of business and each business can be sold separately as a going concern.

In judgemental case law, ‘ Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors.’ It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the company by protecting the company from its own management and from a corporate death by liquidation.”

A key benefit of selling the corporate debtor, as a going concern in liquidation, as against other manners of sale is it can preserve employment while maximising the returns for stakeholders.

Many viable companies may end up in liquidation in the absence of availability of adequate number of bidders in the market or non-approval of resolution plan by requisite voting share of its financial creditors or other reasons. Liquidation of such companies may be premature and can result in avoidable loss of employment, critical disruption for trade creditors who are dependent on the enterprise for their survival, reduction in returns for secured and unsecured creditors and other stakeholders, loss of revenue to government due to drying up of collection of tax and other revenue from such enterprise. Therefore, there is merit in attempting sale of corporate debtor as a going concern in liquidation process.

Hence, It can be said that running of business as a going conern would be beneficial for not only the company but also for the economy as a whole.

The following options are available for sale of business as a Going Concern:

1) The company may be sold as a going concern, as provided in the extant regulations.

As the company survives, there will be no need for dissolution of the company in terms of section 54 of the Code. The assets along with all attendant claims, limitations, licenses, permits or business authorizations remain in the company. The company survives as it was; the ownership of the company is transferred by the liquidator to the acquirer. The liquidator shall make an application to the Adjudicationg Authority for approval of the sale of the company as a going concern

2) The another option of sale, It will be only sale of business, not the corporate debtor which will be liquidated in accordance with the regulations. In this case, the assets and liabilities relevant for the business are transferred to a new entity, and stakeholders are paid from proceeds of sale in accordance with section 53 and the corporate debtor will be dissolved.

Hence, It can be said that running of business as a going conern would be beneficial for not only the company but also for the economy as a whole.

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