Merger Control for Insolvency Resolution Plans: Do Acquisitions of Distressed Firms Warrant Competition Scrutiny?
Indian Institute of Management Ahmedabad, Working Paper No. 2020-05-02 & Insolvency and Bankruptcy Board of India Research Initiative RP-01/2020
34 Pages Posted: 4 Aug 2020 Last revised: 10 May 2021
Date Written: May 8, 2020
In July 2019, the Competition Law Review Committee Report had recommended that Insolvency Resolution Plans (IRP) which result in combinations should be green-channelled. This would mean that IRP combinations would be automatically approved without any merger scrutiny. The theoretical basis of this recommendation is the ‘failing firm defence’ which allows parties to enter into mergers if they show that the exit of a firm from the market will be more harmful to competition than the merger. This paper assesses the advisability of green-channelling IRPs through the lens of competition law. It examines the IRPs which have been scrutinised by the CCI and examines whether they are treated differently from other mergers. We use the European Union as a point of comparison to describe how the failing firm defence is being implemented and to show that there can be anticompetitive effects to green-channelling IRPs without a full competition assessment. We conclude that while the failure of a firm is an important consideration when assessing mergers, it cannot be the sole determinant of their desirability.
Keywords: Insolvency and bankruptcy in India, green-chanelling, failing firm defence, competition, insolvency resolution plans
JEL Classification: F23, K2, K10, K21
Suggested Citation: Suggested Citation