📚 PASS Research Analyst Certification Examination Difficulty: Beginner ℹ️ Info   ~5 min read
📌 Chapter 14.2 — Important regulations in Indian Securities Market

Imagine you are tracking a mid-cap infrastructure firm whose debt-to-equity ratio has spiked following a failed project cycle. You observe that the company has been admitted into the Corporate Insolvency Resolution Process (CIRP) under the IBC. As an analyst, you must determine whether this event signals a potential turnaround through a resolution plan or an inevitable descent into liquidation. The distinction is critical: one represents a restructuring of capital, while the other marks the end of the corporate entity as a going concern.

The Corporate Insolvency Resolution Process is primarily focused on the revival of the corporate debtor. A Resolution Professional (RP) takes over the management, and a Committee of Creditors (CoC) is formed to evaluate resolution plans that might involve a change in management, debt restructuring, or a merger. If a viable plan is approved by the CoC and subsequently the Adjudicating Authority (NCLT), the company continues to operate. Your valuation model must therefore focus on the feasibility of these plans and the haircut creditors are willing to accept.

Conversely, liquidation occurs when the CIRP fails to result in an approved resolution plan or if the CoC decides to liquidate the entity prematurely. During liquidation, the assets are sold to pay off stakeholders according to the ‘waterfall mechanism’ defined in Section 53 of the IBC. As an analyst, liquidation essentially implies that the equity value is likely to be wiped out, as operational and financial creditors take precedence.

For instance, in a recent case, a steel manufacturer’s equity became worthless overnight when the NCLT ordered liquidation, as the total liquidation value was insufficient to even cover the senior secured debt.

Distinguishing between these two paths requires a deep dive into the company’s asset quality versus its debt structure. If the underlying business has strong core assets but poor management or short-term liquidity issues, a resolution is plausible. However, if the assets are obsolete or if the business model is fundamentally unviable, liquidation becomes the statistically probable outcome.

Your research recommendation must reflect this binary risk, as the terminal value of your DCF model effectively drops to the net realization value from the liquidator’s auction, which is often a significant discount to book value. 1

Nuance

⚠️ Nuance
Candidates often confuse the ‘Resolution Plan’ with a simple debt settlement. A resolution plan is a comprehensive business restructuring approved by the CoC, whereas liquidation is a terminal process. A common trap is assuming that being admitted into insolvency immediately renders equity worthless; in reality, many companies successfully emerge from CIRP with viable plans that preserve some shareholder value, provided the resolution plan includes a capital infusion or equity restructuring.

Check Your Understanding

Practice Question 1

Under the IBC, which of the following best describes the fundamental difference between the Corporate Insolvency Resolution Process (CIRP) and Liquidation?

Practice Question 2

If a company enters the liquidation process under the IBC, which group typically has the highest priority in the distribution of assets according to the waterfall mechanism?

This is a companion read for Section 14.2 — Important regulations in Indian Securities Market from PASS Research Analyst Certification Examination by Akhilesh Gururani, available on Amazon Kindle.

Copyright © 2026 Akhilesh Gururani. All rights reserved.

  1. The ‘waterfall mechanism’ dictates the order of priority: insolvency resolution costs, followed by secured financial creditors and workmen dues, and finally, unsecured financial creditors and equity holders. ↩︎