Introduction
Corporate insolvency frameworks play a vital role in managing financial distress by ensuring a balance between protecting creditors' rights and preserving business viability. Two key mechanisms in insolvency resolution process are restructuring and liquidation. Restructuring aims to rehabilitate a financially distressed company by modifying its financial and operational structure to keep it as a going concern, whereas liquidation involves winding up the company's affairs and distributing its assets to its creditors. Both India and the United Kingdom (UK) have distinct yet robust insolvency regimes governing these processes.
In India, the Insolvency and Bankruptcy Code, 2016 (IBC) governs restructuring and liquidation, whereas the UK follows the Insolvency Act, 1986, supplemented by the Corporate Insolvency and Governance Act, 2020 (CIGA, 2020), and further provides for Part 26A of the Companies Act, 2006, which includes the cross-class cram down mechanism for restructuring. A landmark example of restructuring over liquidation can be seen in Re Sino-Ocean Group Holding Limited[2025]EWHC 205 (Ch), wherein the UK High Court sanctioned a restructuring plan despite creditor objections, emphasizing the importance of restructuring mechanisms in avoiding liquidation. The present article examines the comparative legal framework of restructuring and liquidation in India and the UK while analyzing how Re Sino-Ocean demonstrates the effectiveness of restructuring in preserving economic stability and creditor interests.
Understanding Restructuring and Liquidation
Restructuring is a legal mechanism designed to help companies in financial distress by renegotiating their debts, extending repayment terms, or converting debt into equity. It ensures that the company remains operational while offering creditors an opportunity to recover their dues over time. This process is typically court-supervised and involves a moratorium on creditor actions to provide breathing space for financial rehabilitation. In contrast, liquidation is the final step when restructuring is not viable. It involves dissolving the company, selling its assets, and distributing proceeds among its creditors in a predetermined order as per the waterfall mechanism defined under Section 53 of the IBC. While restructuring maximizes long-term recovery by keeping businesses afloat, liquidation results in immediate but often lower recoveries for creditors.
In India, restructuring is facilitated through the Corporate Insolvency Resolution Process (CIRP) under the IBC, which allows creditors or the company itself to propose a resolution plan. A Committee of Creditors (CoC), comprising financial creditors, is responsible for evaluating and approving the plan with a 66% majority vote before it is submitted to the National Company Law Tribunal (NCLT) for final approval. The UK, on the other hand, offers multiple restructuring mechanisms, including Company Voluntary Arrangements (CVA), Administration, and Restructuring Plans under Part 26A of the Companies Act, 2006. One of the key distinctions in the UK is the ability of courts to impose a restructuring plan on dissenting creditors using the cross-class cram down mechanism under Sections 901F and 901G of the Companies Act, 2006, ensuring that viable companies do not get forced into liquidation simply due to creditor objections.
Liquidation processes in both jurisdictions follow a similar hierarchy, where secured creditors are prioritized over unsecured creditors and shareholders. In India, liquidation can be either voluntary (Section 59 IBC) or compulsory, where the NCLT appoints a liquidator to oversee asset distribution as per Section 53 of the IBC. In the UK, liquidation can be pursued through Members' Voluntary Liquidation (MVL), Creditors' Voluntary Liquidation (CVL), or Court-Ordered Liquidation, with a Licensed Insolvency Practitioner (LIP) or Official Receiver managing the process. The UK's approach tends to be faster and more efficient, with higher average creditor recoveries (40-50%) compared to India (25-30%).
Re Sino-Ocean Group Holding Ltd: A Case for Restructuring Over Liquidation
In Re Sino-Ocean, the Hong Kong-listed company faced financial distress and creditor enforcement actions due to defaulted debt exceeding $13 million. A winding-up petition was filed in Hong Kong, but the company sought restructuring under Part 26A of the UK Companies Act, 2006, proposing a restructuring plan to avoid liquidation. The restructuring plan included a cross-border coordination mechanism, where a Hong Kong Scheme of Arrangement was implemented alongside the UK restructuring plan to ensure enforceability across jurisdictions. The company categorized creditors into four classes (A to D), with different restructuring terms, including the issuance of new secured debt instruments and mandatory convertible bonds (MCBs), which would convert into equity after 24 months. However, a dissenting creditor, Long Corridor Asset Management, challenged the plan, arguing that shareholders retained 53.8% of the equity despite contributing no new capital, thereby benefiting unfairly while creditors absorbed losses.
Justice Thompsell sanctioned the restructuring plan despite the objections by a dissenting creditor, Long Corridor Asset Management, invoking the cross-class cram down mechanism under Section 901G of the Companies Act, 2006. The UK Court ruled that creditors would receive significantly better recoveries under the restructuring plan compared to liquidation, where their recoveries would be minimal. Additionally, the court emphasized that keeping key shareholders, such as China Life Insurance, was essential for maintaining stability. This ruling demonstrates the UK courts' preference for restructuring over liquidation when it ensures better financial outcomes.
Comparative Analysis: India vs. UK
In the United Kingdom, insolvency proceedings are governed by statutory provisions, notably the Companies Act 2006 and the Insolvency Act 1986, which confer upon the courts significant discretionary authority to fashion bespoke restructuring arrangements. Under these statutes, mechanisms such as schemes of arrangement and the cross-class cram down provision enable the imposition of a restructuring plan, notwithstanding objections from dissenting creditors, on the basis that such a plan offers demonstrably superior recoveries compared to liquidation. Moreover, this flexible framework facilitates the coordination of cross-border insolvency matters, thereby preserving the enterprise's ongoing operations while protecting creditor interests.
In contrast, the Indian insolvency framework, as set forth in the Insolvency and Bankruptcy Code, 2016, is characterized by its rigid, time-sensitive structure. The Corporate Insolvency Resolution Process (CIRP) requires that a resolution plan be developed and approved by a qualifying majority of creditors within strictly prescribed timelines. Failure to secure such approval within the statutory period results in an automatic conversion to liquidation. This approach curtails judicial discretion and prioritizes procedural certainty and expediency over the tailored solutions available in the UK regime.
Accordingly, while both jurisdictions aim to maximize creditor recoveries and preserve enterprise value, the United Kingdom adopts a more flexible, judicially driven restructuring mechanism, whereas India's approach is defined by its strict, deadline-bound process that leads directly to either a resolution or liquidation.
One of the key differences between India and the UK is India lacks a statutory cross-class cram down provision, making it difficult to impose a restructuring plan on dissenting creditors, whereas the UK courts can enforce restructuring even if some creditor classes dissent, provided they are no worse off than in liquidation.
In terms of judicial oversight, India's insolvency process is highly dependent on NCLT approvals, often causing delays, whereas the UK's restructuring mechanisms, particularly CVA and Administration, allow companies to negotiate restructuring without heavy court involvement. The speed of liquidation is another crucial distinction, with UK liquidation being faster and yielding higher creditor recoveries (40-50%) compared to India (25-30%).
Lessons for India from the UK Framework
India is likely to benefit by enhancing its present insolvency framework and introducing a statutory cross-class cram down mechanism, similar to Section 901G of the UK Companies Act, 2006, to prevent holdout creditors from blocking viable restructuring plans. Additionally, India could streamline tribunal involvement in restructuring cases to reduce delays and increase efficiency.
The case of Re Sino-Ocean provides a valuable precedent demonstrating how restructuring plans can be effectively used to balance creditor interests and ensure business continuity. If India were to adopt similar restructuring mechanisms, companies facing financial distress could benefit from greater flexibility in negotiations, reducing instances where viable businesses are forced into liquidation. A more predictable and structured restructuring process would not only increase creditor confidence but also improve overall economic stability.
Moreover, India could benefit from strengthening out-of-court restructuring mechanisms. The UK has successfully implemented pre-pack administrations and Schemes of Arrangement that allow companies to restructure without prolonged litigation. Introducing similar provisions in India would create alternative pathways for distressed businesses, reducing the dependency on NCLT for approval. Furthermore, increasing transparency in the insolvency process through digital platforms and timely disclosures could enhance the effectiveness of insolvency proceedings and improve recovery rates.
Conclusion
The Re Sino-Ocean judgment exemplifies how the UK prioritizes restructuring over liquidation, utilizing the cross-class cram down mechanism to enforce restructuring plans that benefit creditors and maintain economic stability. While India's IBC framework has significantly improved the insolvency resolution process, it remains heavily dependent on creditor consensus, often leading to liquidation over restructuring. By adopting UK-style restructuring provisions, particularly judicially approved cram downs, flexible moratoriums, and reduced tribunal oversight, India can create a more efficient insolvency regime that aligns with worlds best practices. Strengthening out-of-court restructuring mechanisms and increasing creditor recoveries should be the focus of future reforms, ensuring a balanced approach between creditor rights and business viability.
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