Corporate Rescue or Corporate Exit? Re-examining Insolvency Law Through the Lens of Economic Cycles

Abstract

Insolvency law is usually analysed as a set of rules for resolving individual corporate failure. This paper asks whether it should also be understood as an institution whose performance varies with the phase of the economic cycle, and whether it can support recovery rather than merely process exit. Using a doctrinal and analytical method, it examines the Insolvency and Bankruptcy Code, 2016 (IBC) against the sequence from downturn to distress, insolvency proceedings, rescue or exit, reallocation of assets, and credit and investment effects. The paper argues that IBC’s contribution to economic resilience is conditional rather than automatic. It depends on the speed of resolution, the credibility of valuation, creditor coordination and the predictability of judicial review, all of which come under strain in downturns, when buyers are scarce and liquidation values fall. Judicial decisions on the commercial wisdom of creditors, clean-slate finality and failed implementation, together with the pandemic suspension under Section 10A and the 2026 amendments, show that Indian law treats rescue and exit as competing priorities whose balance shifts with economic conditions. The paper concludes that insolvency law is best viewed as an asset-reallocation mechanism that can support recovery when it works in a timely manner but cannot substitute for macroeconomic and credit policy.