Exploring a Quasi-absolute priority rule for pay-outs to operational creditors in bankruptcy resolutions: Evidence from India

IF 5.5 2区经济学 Q1 BUSINESS, FINANCE

Global Finance Journal Pub Date : 2025-01-05 DOI:10.1016/j.gfj.2025.101074

S. Veena Iyer, Rohit Prasad

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Abstract

We show that the Absolute Priority Rule (APR), which prioritizes financial creditors over operational creditors in the distribution of proceeds in liquidation, is inappropriate and unfair during resolution and deprives the latter of their share of value in the reorganized concern. Using data from bankruptcy resolution cases under the Indian Insolvency and Bankruptcy Code (IBC) 2016, we examine an alternate Quasi-APR rule for equitable distribution and find that while in the aggregate, the operational creditors get pay-outs not significantly different from this rule, there is intra-group divergence created by the liquidation premium (the excess of resolution proceeds over liquidation value of assets), and the operational creditors' claim size. The actual dynamics conform to opportunistic behaviour by the financial creditors, moderated by certain factors. In the spirit of the modified Creditors' Bargain Theory and the Values-based theory, we propose the quasi-APR rule as a transparent and pragmatic solution towards value-conservation of the asset and equity. We recommend the Quasi APR-based payout to be made the minimum payout for the OCs.

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来源期刊

Global Finance Journal BUSINESS, FINANCE-

CiteScore

7.30

自引率

13.50%

发文量

106

审稿时长

53 days

期刊介绍： Global Finance Journal provides a forum for the exchange of ideas and techniques among academicians and practitioners and, thereby, advances applied research in global financial management. Global Finance Journal publishes original, creative, scholarly research that integrates theory and practice and addresses a readership in both business and academia. Articles reflecting pragmatic research are sought in areas such as financial management, investment, banking and financial services, accounting, and taxation. Global Finance Journal welcomes contributions from scholars in both the business and academic community and encourages collaborative research from this broad base worldwide.