Strategic Revival Funding under IBC: Practitioner’s Blueprint for a Functional Revival Fund

1. Context: Why Capital Gaps Are Undermining IBC Outcomes

The Insolvency and Bankruptcy Code, 2016 (“IBC”) was enacted to enable time-bound rescue of distressed but fundamentally viable enterprises. On paper, the framework is robust: it emphasizes resolution over liquidation, creates a creditor-in-control model, and provides tools such as interim finance.

On the ground, however, many corporate debtors collapse into liquidation or experience stalled resolutions not because their business model has failed, but because they lack access to critical working and revival capital at the right stages of the process.

Several recurring patterns have highlighted this missing link between legal resolution and economic revival:

  • Corporate debtors with strong underlying assets being liquidated at distressed values
  • Resolution applicants being unable or unwilling to proceed due to lack of support for working capital or project completion
  • Real estate and infrastructure CIRPs where projects halt midway because cash flows cannot sustain ongoing construction or operations
  • Resolution processes collapsing due to a mismatch between immediate operational cash needs and the timing of resolution plan approval and implementation

While interim finance is statutorily recognised under IBC, in practice:

  • It is often difficult to source in high-stress sectors
  • Pricing can be prohibitive due to perceived risk
  • Lenders are wary of legal and priority risks

This systemic financing vacuum has led to renewed discussion—both judicially and at policy level—around creating a dedicated Revival Fund mechanism within the IBC ecosystem.

2. Conceptualising a Revival Fund under IBC

2.1 Core Idea

A Revival Fund in the IBC context can be understood as a professionally managed pool of capital, set up with a focused mandate to support corporate debtors that are:

  • Undergoing Corporate Insolvency Resolution Process (CIRP), or
  • In the early post-approval phase of a resolution plan

Rather than serving as a bailout facility, the fund is intended to act as a value-protection and value-realisation tool by:

  • Providing working capital and project-completion funding to viable businesses
  • Bridging the timing gap between CIRP proceedings and the inflow of funds under an approved resolution plan
  • Strengthening the execution capability and credibility of resolution plans by ensuring availability of “new money” liquidity

2.2 Key Functional Objectives

An effectively structured Revival Fund would be designed to:

  1. Support viable corporate debtors during CIRP by:

    • Stabilising operations
    • Preventing erosion of business value
    • Avoiding operational shutdowns purely due to liquidity shortfalls

  2. Provide post-approval execution capital to implement approved resolution plans, especially where:

    • Large capex is required to restart or complete projects
    • Inventory, raw materials, or labour costs must be funded upfront

  3. De-risk resolution plans by offering a credible funding backstop that:

    • Enhances confidence for the Committee of Creditors (CoC)
    • Encourages higher participation from resolution applicants
    • Reduces the likelihood of plan failure after approval

3. Design Principles: What a Practically Workable Revival Fund Must Look Like

For Insolvency Professionals, lenders, and investors to rely on such a fund, its architecture must be grounded in commercial discipline rather than policy sentiment.

3.1 Principle 1: Commercial, Return-Oriented Framework

The fund cannot function as a quasi-relief or subsidy scheme. To attract serious capital and avoid moral hazard, it must operate on:

  • Risk-adjusted returns: Pricing should reflect credit and project risk, sectoral volatility, and security structure
  • Clear exit pathways: Investors must have well-defined mechanisms for recovery and exit (refinancing, repayment, conversion, etc.)
  • Independent investment decisions: Fund deployment must be driven by professional judgement, free from political or extraneous pressures

Absent commercial integrity, such a fund risks degenerating into a parking lot for distressed exposures rather than a revival enabler.

3.2 Principle 2: Objective Eligibility and Funding Triggers

Entry into the Revival Fund pipeline should not be discretionary or automatic. Funding must be contingent on: