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Developing a Framework for Adjudication in a Phoenix Insolvency Situation: Can the Enterprise Theory Offer a Viable Solution?

Using the much debated concept of piercing of the corporate veil, this article seeks to address the relatively unexplored problem of phoenix companies in Indian insolvency law. Following the recent insertion of section 29A into the Insolvency and Bankruptcy Code, 2016, the question of phoenixing has begun to emerge at the forefront of academic discussion. Drawing heavily upon English, Australian and US discourse, the authors attempt to outline an alternative approach to curb the practice of phoenixing. Section 2 of this article engages in profiling a phoenixing company using English, Australian and Indian Committee reports – defining a phoenix company, differentiating between legitimate and illegitimate forms of phoenixing and outlining the hazards of phoenixing. Section 3 goes on to examine the applicability of the ‘mere continuation/continuation of enterprise theory’ to phoenix companies culminating in piercing the corporate veil of the successor company. Finally, the article concludes by acknowledging the sophisticated nature of phoenix companies, and recognizes the need for a dynamic response to this practice.