A 'waterfall' for insolvency resolution

Honouring secured contracts and mimicking the liquidation waterfall could promote a judicious system of distribution of proceeds and minimise disputes

The Insolvency and Bankruptcy Code, 2016, or IBC, has been a work in progress. The Ministry of Corporate Affairs has recently issued a discussion paper inviting comments on the changes it is proposing to further strengthen the IBC. One proposal that has attracted considerable attention is a formula-driven distribution of proceeds of a resolution plan to make it more equitable. It suggests proceeds up to the liquidation value will be distributed in the order of priority provided in the liquidation waterfall to secured and unsecured creditors. Any surplus over the liquidation value will be rateably distributed among creditors in the