How to Execute a Going-Concern Sale During Liquidation Under the IBC: A Step-by-Step Guide

When a Corporate Insolvency Resolution Process (CIRP) fails to produce an approved resolution plan, the company enters liquidation under Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC). Liquidation does not always mean piecemeal asset stripping. Under Regulation 32(e) of the IBBI (Liquidation Process) Regulations, 2016, the liquidator can sell the corporate debtor as a going concern, preserving the business, its workforce, and its enterprise value. This guide walks through the complete process from the liquidator's perspective, with practical pointers for bidders and creditors.

Step 1: Determine Feasibility of a Going-Concern Sale

Before initiating a going-concern sale, the liquidator must assess whether the business is viable as a continuing enterprise. Key factors to evaluate include:

• Operational status: Whether the company's operations are ongoing or can be resumed. A company whose plant has been dismantled or whose licences have lapsed may not be a realistic going-concern candidate.

• Asset integrity: Whether the assets (machinery, real estate, intellectual property, contracts) are intact and capable of generating revenue as a unit.

• Creditor preference: The Stakeholders' Consultation Committee (SCC) formed under Regulation 31A should be consulted. While the SCC's views are advisory, strong creditor support strengthens the liquidator's decision.

• Market interest: Preliminary market soundings to gauge whether potential buyers exist for the business as a whole.

In practice, the liquidator should document the feasibility assessment in writing and place it before the SCC. This documentation is critical if the sale is later challenged before the NCLT.

Step 2: Obtain Necessary Approvals

The liquidator must seek approval from the Adjudicating Authority (NCLT) for selling the corporate debtor as a going concern. The application should include:

• A detailed report on why a going-concern sale maximises value for creditors compared to piecemeal liquidation

• The proposed auction terms, including the reserve price determined by the registered valuers

• The SCC's recommendation or minutes recording its views

• A timeline for the proposed sale process

Under Regulation 32(e) read with Regulation 33 of the Liquidation Process Regulations, the liquidator must follow the prescribed auction process. The NCLT's order approving the going-concern sale methodology is a prerequisite before the e-auction can be conducted.

Step 3: Conduct the E-Auction

The e-auction must comply with Schedule I of the Liquidation Process Regulations. The key steps are:

1. Appoint registered valuers: Two registered valuers must determine the liquidation value and fair value of the corporate debtor as a going concern. The reserve price is typically the higher of the two valuations, subject to the liquidator's judgment.

2. Publish the auction notice: The notice must be published on the IBBI website, in newspapers (one English and one vernacular), and on any other platform directed by the NCLT. The notice must clearly state that the sale is of the corporate debtor as a going concern.

3. Set eligibility criteria: Bidders must meet the eligibility requirements under Section 29A of the IBC. The liquidator should specify the earnest money deposit (EMD), typically 10% of the reserve price, and the timeline for submitting bids.

4. Conduct the auction: The e-auction is conducted on an approved electronic platform. The highest bidder who meets the eligibility criteria is declared the successful bidder.

5. Issue the Letter of Intent (LOI): The LOI is issued to the successful bidder specifying the sale consideration, payment timeline, and conditions precedent.

Step 4: Execute the Sale and Obtain the Sale Certificate

After the successful bidder pays the full consideration as per the LOI terms, the liquidator issues a Sale Certificate under Regulation 33(3). The Sale Certificate transfers the corporate debtor as a going concern to the successful purchaser.

In practice, the Sale Certificate is the foundational document for all subsequent actions. The purchaser should ensure it clearly describes:

• The corporate debtor being transferred as a going concern (not merely its assets)

• The total sale consideration paid

• The date of transfer

• Any conditions or carve-outs agreed between the liquidator and the purchaser

Step 5: Apply to the NCLT for Consequential Reliefs

This is where the recent NCLAT ruling in Ravikumar Gaurishankar Patel v. Gajesh Labhchand Jain [Company Appeal (AT) (Insolvency) 710/2026, decided September 3, 2026] provides critical guidance. The successful purchaser should file a comprehensive application before the NCLT under Section 60(5)(c) seeking all reliefs necessary for effective implementation, including:

• Shareholding restructuring: Extinguishing existing shares and issuing fresh share capital to the new promoter, consistent with Rule 19A of the Securities Contracts (Regulation) Rules, 1957.

• Clean-slate protection: Declaration that Section 32A immunity applies, protecting the purchaser from liability for offences committed by prior management before the CIRP.

• Past liability waiver: Direction that no entity, including government authorities, can claim past unpaid dues against the purchaser after distribution under Section 53.

• MCA portal status change: Direction to the Registrar of Companies to change the company's status from 'under liquidation' or 'struck off' to 'active'.

• Licence and permit continuity: Declaration that all subsisting consents, approvals, and licences continue to vest with the corporate debtor, subject to renewal requirements.

• Financial creditor cooperation: Direction to financial creditors to execute ministerial acts (release of charge, no-objection certificates) necessary for the purchaser to operationalise the business.

The NCLAT in the Talwalkars case confirmed that the NCLT has jurisdiction to grant all these reliefs in a single proceeding, rather than requiring the purchaser to approach each regulator separately.

Step 6: Distribute Sale Proceeds Under the Waterfall

The liquidator must distribute the sale proceeds strictly in accordance with the waterfall mechanism prescribed under Section 53 of the IBC:

1. Insolvency resolution process costs and liquidation costs

2. Workmen's dues for the preceding 24 months and secured creditor debts (pari passu)

3. Employee wages for the preceding 12 months

4. Financial debts owed to unsecured creditors

5. Government dues (not more than two years preceding the liquidation commencement date)

6. Remaining debts and dues

7. Preference shareholders

8. Equity shareholders or partners

In practice, the distribution should be completed promptly after receipt of the sale consideration. Delays in distribution can attract scrutiny from the NCLT and the IBBI.

Step 7: Close the Liquidation Process

After the sale proceeds have been distributed and all consequential reliefs have been implemented, the liquidator must file a final report with the NCLT and apply for closure of the liquidation proceedings. The NCLT will pass an order dissolving the liquidation process, and the company (now under its new ownership) continues as an active entity.

Common Pitfalls to Avoid

• Incomplete applications: Filing piecemeal applications for individual reliefs instead of a comprehensive application wastes time and judicial resources. The Talwalkars ruling confirms that a single consolidated application is the preferred approach.

• Ignoring Section 29A eligibility: Failure to properly verify the successful bidder's eligibility under Section 29A can result in the sale being set aside on appeal.

• Delayed payment: If the successful bidder fails to pay within the stipulated timeline, the liquidator should forfeit the EMD and proceed to the next eligible bidder.

• Inadequate valuation: Using outdated or insufficiently detailed valuations can lead to challenges from dissatisfied creditors. Ensure the valuers specifically assess the going-concern value, not merely the liquidation value of individual assets.

Key Statutory Provisions

• Section 33 of the IBC: Initiation of liquidation.

• Section 35(1)(f) of the IBC: Powers of the liquidator to sell the assets of the corporate debtor.

• Section 53 of the IBC: Distribution of assets in the waterfall mechanism.

• Section 60(5)(c) of the IBC: Residuary jurisdiction of the NCLT.

• Section 32A of the IBC: Immunity from liability for prior offences.

• Regulation 32(e) of the Liquidation Process Regulations: Sale of corporate debtor as a going concern.

• Regulation 33 of the Liquidation Process Regulations: Manner of sale.

• Schedule I of the Liquidation Process Regulations: Auction process.

Sources and References

• Ravikumar Gaurishankar Patel v. Gajesh Labhchand Jain, 2026 LLBiz NCLAT 340

• Insolvency and Bankruptcy Code, 2016, Sections 29A, 32A, 33, 35(1)(f), 53, 60(5)(c)

• IBBI (Liquidation Process) Regulations, 2016, Regulations 31A, 32(e), 33, Schedule I

• Securities Contracts (Regulation) Rules, 1957, Rule 19A

Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.