Corporate exit regime: Companies are born, they grow—and, sometimes, they must bow out. Founders rarely plan for failure, yet a clean, predictable exit is as vital to capitalism as easy incorporation. When insolvency drags on, investment freezes, workers are stranded and public confidence withers—witness the drawn-out collapses of WeWork in 2024 and crypto exchange FTX a year earlier. Conversely, fast, fair winding-up rules recycle capital and talent, letting fresh ventures sprout from the ashes. That is why a credible exit policy sits at the heart of any robust “ease of doing business” agenda.
New Delhi has recognised the point. Over the past decade it has trimmed the average time to close a company from an eye-watering 499 days to as little as 110 days. Key milestones include the Insolvency and Bankruptcy Code (IBC) of 2016, the removal of no-objection certificates for voluntary liquidations in 2021 and the Centralised Processing for Accelerated Corporate Exit (C-PACE) window launched in 2023. According to the Prime Minister’s Economic Advisory Council, 75 per cent of the 2,133 voluntary liquidation cases initiated by December 2024 have already reached the final-report stage, with more than half fully dissolved. Such progress signals to investors that India is serious about allowing money—and mistakes—to move on.
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Benchmarks for corporate exit regimes
Yet India still under-performs the best. Creditors in OECD high-income economies recover roughly 70 cents on the dollar within 1.7 years; in many developing jurisdictions, recovery averages barely 20 cents after more than four years. The gap is procedural. US Chapter 11 cases now finish in months thanks to streamlined asset sales and swift judicial sign-offs. Britain’s 2020 Corporate Insolvency and Governance Act grants firms a 20-business-day moratorium to line up rescue financing, a tweak that has already lifted successful restructurings by 40 per cent.
Singapore’s “pre-pack” agreements—negotiated privately, then rubber-stamped by the courts—have cut rescue costs by a third and preserved nearly 9,000 jobs since 2020. These experiences prove that speed need not sacrifice transparency: when courts respect real-time market valuations, residual value is maximised and macro-shocks contained.
Modern supply chains ignore borders, so insolvency law must travel too. Sixty-three jurisdictions—including Malaysia this year—now anchor their statutes in the UN Model Law on Cross-Border Insolvency. The framework rests on a simple test of a debtor’s “centre of main interests” and empowers local judges to assist foreign main proceedings. Co-ordinated courts dramatically reduced duplicative litigation during the sprawling 2023 bankruptcy of China-based PAX Maritime, lifting creditor recoveries to 58 cents on the dollar from the 35 cents typical of earlier, unco-ordinated workouts. India’s judiciary, already overloaded, would profit from similarly clear guidance when domestic firms with global assets implode—and from digital case-management tools that make filings traceable across jurisdictions.
Bhushan steel case
The saga of Bhushan Steel highlights the perils and promise of India’s corporate exit regime. Once a titan in the steel industry, Bhushan Steel amassed a staggering Rs 63,020 crore in debt by 2017, crippled by over-leveraged expansion and the 2008 financial crisis. Its Odisha plant, intended to secure raw material supply, became a financial albatross due to relentless borrowing and construction delays.
The IBC’s intervention in 2017, initiated by the Reserve Bank of India, marked a turning point. Tata Steel acquired Bhushan Steel in 2018 for Rs 35,200 crore, slashing debt to Rs 17,651 crore and boosting net profit to Rs 1,913.73 crore by Q4 FY21 through operational synergies and market expansion. Yet, allegations of fund siphoning by promoters via a web of 150 shell companies underscore persistent governance challenges. Bhushan Steel’s journey through the IBC illustrates both the code’s potential to revive distressed assets and the systemic vulnerabilities that demand vigilant oversight.
Human capital cushion
Even the most graceful corporate funeral leaves real-world grief. Nordic countries blunt the impact with wage-guarantee funds—Germany’s Insolvenzgeld fronts three months’ salary, financed by a levy on all employers—while Denmark’s celebrated “flexicurity” model couples easy dismissal with generous retraining grants, keeping long-term unemployment below two per cent even in the pandemic slump. Such cushions protect household demand and sustain political backing for an otherwise hard-nosed system. India’s social-security net is thinner; policymakers should weigh a modest levy on solvent employers to fund prompt wage payouts and retraining stipends when firms collapse.
Technology is beginning to rewrite the rulebook. Estonia records creditor claims on a blockchain ledger, trimming administrative costs by an estimated 15 per cent. Artificial-intelligence tools now forecast recovery values with startling accuracy, guiding judges on when to approve asset sales. C-PACE shows India understands the promise of digitisation; the next frontier is a single, searchable platform that integrates Tax, Registrar-of-Companies and National Company Law Tribunal databases, slashing paperwork at each procedural step. Transparency, audit trails and open algorithms will be essential to maintain public trust.
More pain points
For all the gains, bottlenecks persist. Roughly a fifth of voluntary liquidation cases stall at the National Company Law Tribunal. Creditors still complain of inconsistent timelines, and micro-, small- and medium-sized enterprises lack affordable advisory services to navigate the maze. Cross-border recognition remains patchy, while workers endure months-long waits for back wages. These failings are not merely bureaucratic; they inflate the cost of credit and discourage entrepreneurial risk-taking.
The lessons are plain. A world-class exit regime must deliver four things: speed with integrity, early-warning and out-of-court deals, cross-border co-ordination, and humane worker safeguards. India’s recent reforms tick the first box but only partly address the other three. Embedding statutory moratoria on creditor actions, encouraging pre-pack restructurings, adopting the UN Model Law and creating a wage-guarantee fund would close much of the gap. Complement these with digital case-tracking and India can cut voluntary closures to the three-month benchmark prevailing in the most agile economies.
Capitalism, after all, thrives on creative destruction. An economy that cannot let firms die cleanly will struggle to let new ones live. By perfecting the art of the exit, India will not just tidy up bankruptcies: it will unlock cheaper credit, spur bolder entrepreneurship and build a labour market that bounces rather than breaks when business models do. The prize is growth grounded in resilience—proof that endings, handled well, are the first chapter of the next success story.