In May, Go First took its lenders and vendors by surprise by filing its insolvency application under the Insolvency and Bankruptcy Code, 2016.

What makes this case particularly intriguing is the timing and strategy behind the application. It showcases how the IBC is now being wielded as a tool for business decisions.

Within 10 days of passing resolution by the shareholders on April 30, the application was admitted by National Company Law Tribunal (NCLT) on May 10, 2023 and a moratorium was declared. Debt and default are supposed to sacrosanct for initiation of insolvency application under IBC.

The application of Go First carries some interesting facts. On the date of filing the application, Go First had defaulted ₹2,660 crore toward aircraft lessors and ₹1,202 crore to other vendors.

A piece of legislation which was initially presumed to be the domain of legal and finance professionals has crept into the world of business as a tool of business decision. In the case of GoAir, it bore no defaults towards financial creditors as on the date of approval of shareholder or filing the application.

The default in this regards took place soon after the date of shareholder approval, which was given on May 4, 2023. Go First makes an extraordinary case of how business houses pre-empted an adverse fallout.

‘Strategic’ move

Moratorium under IBC comes very handy to the businessman to craft a solution without having to worry on repayment of debts or interest before the admission of insolvency application. The case of GoAir has strategically put them in an advantageous position with the airline not being too worried about returning the aircraft to the lessor on non-payment.

The cleverly deliberated move of business cannot be termed as unjust but a well thought option for resolution. IBC has come a long way in bringing maturity into the debtor and creditor market.

As on March 31, 2023, 390 Corporate Debtors have voluntarily filed for insolvency under IBC. This amounts to 5.93 per cent of the 6,567 insolvency cases admitted by NCLT. India is a country where closely held companies are dominant. For family-owned business and closely held business, such usage of IBC is still a taboo.

Contrary to popular belief, the use of Section 10 application does not amount to misuse of the law. It implies the coming of maturity in business strategy. It reinforces the freedom to exit in business.

Resilient ecosystem

As the IBC continues to shape the corporate landscape, we must recognise its potential to foster a more resilient and adaptable business ecosystem.

In fact, Go First’s move is also a lesson to financial creditors — they should pre-empt a stage when recoveries from the business lose value and instead move the IBC in time to improve the prospects of revival of an undertaking.

The writer is an Insolvency Professional and CA