These are valid concerns regarding the functioning of the IBC once a firm enters insolvency proceedings. However, these very features determine what lenders expect to recover upon default and, consequently, shape the terms on which they extend credit before any default occurs. Thus, evaluating the IBC primarily through resolution outcomes provides only a partial picture of its effects. We, therefore, look beyond the insolvency process to examine how the reform affected firms that never entered insolvency proceedings.
In its early years, the IBC was widely credited with improving India’s previously dysfunctional corporate insolvency resolution framework. Before the IBC, creditors recovered barely a quarter of the value of…