Insolvency of Digital-First and Asset-Light Businesses

Abstract

India’s insolvency framework is now better at understanding the value of digital-first and asset-light businesses than it was a few years ago. The biggest change can be seen in the valuation rules. The current fair-value definition under the CIRP regulations clearly says valuers must look at both physical and non-physical assets, and also at the extra value created when those assets work together, while recent reforms have strengthened asset-class valuation, coordinating-valuers, methodology explanation, valuation standards, and report traceability. But recognising value is not the same thing as protecting it. In digital-first distress, the value that can actually be recovered may still depend on lawful use of data, continuation of contracts and licences, access to key platforms, retention of important people, control over operations, and the ability to keep the business running as one working unit instead of splitting it into broken pieces. This article argues that India has improved the way it values such businesses, but the hardest problems still begin when that value has to survive due diligence, transfer, creditor negotiations, legal limits, and real-world execution under stress. It also compares India’s position with a few other jurisdictions and suggests a careful way forward.

Introduction

Digital-first distress does not behave like ordinary asset distress.

In a traditional insolvency, much of the conversation can still revolve around land, plant, machinery, inventory, receivables, and other assets that can at least be identified, separated, and priced with some market logic. In a digital-first or asset-light business, that framework is often incomplete. Much of the real value may sit in software, brands, data-driven workflows, user relationships, licences, contractual access, product architecture, payment rails, marketplace participation, cloud dependencies, and the people who keep the enterprise functioning.

Those value drivers are real. But they are unusually sensitive to disruption.

That is why the recent valuation changes matter so much. India’s current insolvency framework no longer invites a purely hard-asset reading of value. The fair-value definition in the CIRP regulations now clearly says valuers must look at both physical and non-physical assets, and also at the extra value created when those assets work together. The valuation system has also become more structured through asset-class valuation, coordinating valuers, explanation of method, IVS adoption, reporting discipline, and the Valuation Report Identification Number regime. [1] [2] [3] [4]

Even so, the practical difficulty remains severe. A digital business may look valuable on paper and fragile in transfer. A data-heavy business may clearly have value, but the law may limit how that value can be used or transferred. A platform-led business may depend on permissions, integrations, and counterparties that are commercially central but not fully owned in the old fixed-asset sense. A software-led firm may appear transferable until one asks whether code control, deployment capability, customer continuity, compliance architecture, and the team that understands the system will actually survive the process.

This is the main difficulty. India has improved the framework for recognising digital-first value. It has not removed the problems that decide whether that value can be kept, transferred, or turned into real money in distress.

What “Digital-First” and “Asset-Light” Mean in Insolvency Analysis

The labels matter. “Asset-light” does not mean asset-free. “Digital-first” does not mean legally simple.

A digital-first business may own little in the conventional fixed-asset sense and still carry substantial business value. A SaaS business may rely on recurring subscriptions, product stickiness, internal tooling, and customer workflow integration. A marketplace may depend on user trust, vendor participation, payment architecture, and algorithmic visibility. A D2C business may depend heavily on software-led acquisition, data-enabled retention, and third-party distribution infrastructure even where the physical product is straightforward. A regulated service business may rely more on data systems, permissions, compliance workflows, and specialist teams than on a visibly asset-rich balance sheet.

In each case, the issue is not simply whether the business has assets. It is whether the legally and commercially important parts of the business can remain connected long enough for value to survive the insolvency process.

This distinction matters because many asset-light businesses are not operationally light at all. They are dependency-heavy. Their value may depend on permissions, integrations, lawful processing, customer trust, and the business continuing to run rather than by stable ownership of separable hard assets. Insolvency therefore exposes a sharper gap than usual between what the business seems to own, what the market values, and what a buyer can actually preserve.

Why These Businesses Enter Distress Differently

Digital-first businesses often fail differently from older industrial businesses.

Some expand quickly without securing durable unit economics. Some become dependent on one cloud provider, one app-distribution route, one payment rail, one marketplace, or one customer-acquisition channel. Some are exposed to regulatory or compliance shocks. Some rely on financing flows and growth narratives that collapse when capital tightens. Others are commercially useful but still vulnerable because key know-how sits with a small technical or founder group.

That matters because distress in such firms is often experienced as a collapse in continuity confidence. Users may leave. Vendors may tighten terms. Key staff may disengage. Counterparties may revisit permissions or suspend integration support. The business begins to lose value not only because liabilities have risen, but because the assumptions that supported enterprise value become harder to defend.

A hard-asset business can also suffer confidence loss. But in digital-first cases, that loss can strike closer to the core operating logic of the firm. The business may still look rich in intangibles while becoming poor in recoverable value.

Where the Value Actually Sits

The value of a digital-first business often sits in combinations rather than in isolated units.

It may sit in source code together with the team that understands it. It may sit in a user base together with lawful data use and service continuity. It may sit in a brand together with retention and trust. It may sit in integrations together with API continuity, vendor support, and product-maintenance capability. It may sit in contracts that look routine in the abstract but are commercially central in practice.

That is why digital-first insolvency is rarely just an exercise in listing assets. It is really a question of whether the conditions that make those assets useful and valuable will still exist during and after distress.

This also explains why business value and recoverable value may differ sharply. A business may be commercially attractive as a functioning whole and materially weaker as a bundle of disconnected parts. In asset-light cases, what matters may not be the existence of one high-value asset, but the continuity of a system.

The Problem Runs Through the Whole Insolvency Process, Not Just Valuation

One of the reasons digital-first insolvency is often misunderstood is that the issue does not arise only at the valuation moment.

It begins earlier. At the pre-admission or early-process stage, the first question may be whether operational continuity is already weakening. During CIRP, the difficulty may shift to access control, key personnel, vendor dependence, customer stability, and data-governance uncertainty. During bid and resolution-plan discussions, the issue may become one of diligence, transferability, pricing, and integration assumptions. In liquidation, the question may become whether the business can still be sold as a meaningful whole, or whether value has already fragmented beyond repair. After approval or transfer, the challenge may become whether the acquirer can actually continue the business in law and in practice.

So digital-first distress is not one valuation problem. It is a chain of linked weaknesses across the insolvency process.

India’s Valuation Reforms and the Wider Change in the Valuation System

This is where the Indian framework has changed most significantly.

The current CIRP fair-value definition is no longer merely an asset-listing concept. Regulation 2(1)(hb), as amended, allows valuation of the corporate debtor or the assets of the corporate debtor, and the explanation expressly requires attention to all assets, including tangible and intangible assets, together with their underlying synergies. [1]

This is not a small wording change. It marks a real shift in the law. It recognises that business value may sit not only in what can be sold separately, but also in the way assets and operations work together. In digital-first cases, those interactions can be decisive: software and the team that supports it; customer relationships and lawful data use; brand and retention; platform access and transaction flow; integrations and service continuity.

The reform did not stop there. The valuation process now works through asset-class valuation architecture, one valuer per asset class in each set, and a coordinating valuer who integrates the enterprise-level fair value of the corporate debtor. [1] The framework also now requires methodology explanation before the committee prior to computation, which matters greatly in cases where assumptions are doing much of the work. [1]

The wider valuation system changed too. The 2024 VRIN circular introduced report traceability and authenticity discipline. [3] The 2026 valuation standards circular adopted the International Valuation Standards for valuations under the Code. [2] The 15 June 2026 IBBI circular then pushed the framework further. It did not merely standardise the outward format of valuation reports. It required a fuller valuation-governance structure: comprehensive documentation, clearer disclosure of methods and models, explanation of important inputs, reasons for exclusions or zero values, a visible rationale for the final conclusion, and a more structured coordinating-valuer process. It also gave specific content to difficult areas such as receivables by requiring attention to ageing, enforceability, dispute status, debtor profile, recovery cost and time, and wider market conditions. [4]

This matters especially for digital-first insolvency because value in such businesses often depends on different parts of the business working together and on assumptions that may be legally and operationally fragile. The newer architecture is therefore better not only at recognising intangibles and synergies, but also at forcing those valuation judgments to be stated more clearly and defended more transparently. That is a real advance. But it still does not guarantee correct outcomes. A more disciplined valuation file is not the same thing as preserved enterprise continuity. The law is now better at seeing value. The harder question is whether that value survives transfer, diligence, permissions, and operational disruption in the real world.

Seeing Value Does Not Mean You Can Recover It

A valuation system can recognise value in intangibles without guaranteeing that the value will survive a distressed transfer.

This is where the real problem begins. The law can require attention to intangibles and synergies. It cannot ensure that those synergies survive distress. A code base may look valuable on paper, but much less so if the people who maintain it leave. A digital brand may appear strong until service continuity weakens. A customer network may seem valuable until users churn, permissions tighten, or counterparties pull back. A business that appears enterprise-rich in an analytical model may still be heavily discounted in an actual transaction if continuity assumptions are difficult to trust.

This is where the gap between theoretical enterprise value and realistically recoverable value becomes unusually important. In hard-asset cases, that gap may still exist, but it is often easier to observe. In digital-first cases, the gap may turn on legal continuity, operational control, staff retention, data use, and permissions that are harder to price and easier to disrupt.

Data Has Value, But the Law Still Controls It

For many digital-first businesses, data is central to enterprise value. But insolvency does not convert personal data into a freely disposable asset.

The Digital Personal Data Protection Act, 2023 regulates processing, notice, consent structure, data-principal rights, security safeguards, and erasure obligations. [5] That means the value of a data-heavy business cannot be measured simply by asking whether a database exists. The more useful question is whether the business, or a buyer, can keep using that data legally and commercially after the insolvency transaction.

That question becomes more complicated when the real value sits not only in raw data, but in mixed datasets, customer histories, behavioural patterns, analytics tied to day-to-day business operations, and operating systems built around continued lawful use. A dataset may exist and still be commercially constrained. It may be valuable in a going concern and materially less valuable in a fractured transfer.

Section 17 of the DPDP Act is important, but it must be described carefully. It may ease some transfer frictions where processing is necessary for a compromise, arrangement, merger, amalgamation, or transfer of undertaking approved by a court, tribunal, or competent authority. [5] Even so, that is not a blanket insolvency exemption. Accountability, security, and fit-to-facts compliance still matter.

So the right way to describe data value in insolvency is a narrow one. Data may still be a major source of enterprise value. But it is value controlled by law. Its usefulness after distress depends not only on commercial logic, but on lawful continuity of processing and transaction design.

IP, Software, Licences, and Platform Dependence

Another major issue is the structure of what the business actually controls.

Many digital-first businesses depend on more than owned intellectual property. They may rely on software libraries, cloud-service relationships, SDKs, APIs, app-distribution channels, marketplace status, payment integrations, advertising systems, vendor dashboards, and other forms of controlled access. The economic significance of these arrangements may be enormous even where the legal position is more limited than full ownership.

The safe legal point is not that such rights can never survive insolvency. It is that their economic value may depend heavily on transferability, continuity, and contract terms that cannot be assumed away. What looks like a core business asset may really depend on permissions that can be limited or withdrawn.

This is where the liquidation framework offers a useful lens. The liquidation regulations recognise unprofitable contracts, property that is not readily saleable, and assets that are not readily realisable. They also tie realisation to sale method, valuation discipline, reserve price logic, and consultation. [6] Those provisions do not create a digital-specific code. But they do support a cautious and important insight: in an asset-light business, the difficulty may lie less in identifying value than in transferring it in a form that still works.

People as Part of the Core Business

Digital businesses are often more dependent on human continuity than balance-sheet language suggests.

A small technical or product group may hold much of the operating memory of the enterprise. Knowledge may sit in deployment routines, undocumented workflows, vendor relations, customer-management systems, or compliance architecture. In some firms, credential control, product stability, and customer trust all turn on a relatively thin layer of people.

The cautious claim is not that founders or key staff always leave in insolvency, or that departures always destroy value. It is that workforce continuity can be a serious valuation and transfer variable in digital-first cases. A code base without the people who understand its architecture may be much harder to maintain or commercialise. A service business with customer traction may still weaken rapidly if the operational team exits.

That matters because some buyers are not valuing only static assets. They are valuing the prospect of continued operation.

Continuity Versus Fragmentation

For many digital-first businesses, value can fall sharply if the enterprise is broken into disconnected pieces. Software without maintainers, data without usable permissions, brand without service continuity, users without product trust, and contracts without execution capacity may each retain some residual value. But the integrated value of the business may be far greater than the sum of those fragments.

That is precisely why the newer fair-value architecture matters. By expressly requiring attention to intangibles and synergies, the law is no longer pretending that value always sits neatly inside separable parts. [1] But the same recognition also sharpens the challenge. If value lies in the business as a functioning whole, the process must confront whether continuity can actually be preserved in fact, not just described on paper.

This has implications for sale strategy too. A business may be technically divisible yet hard to split without losing value. It may be possible to strip out assets, assign residual rights, or sell isolated elements. But a fragmented outcome may still destroy much of what made the business attractive. In such cases, going-concern thinking is not sentimental. It may be the only realistic path to preserving material value.

Resolution Applicants, Buyers, and Due Diligence

The continuity problem becomes especially concrete at the bidder and resolution-plan stage.

A serious bidder in a digital-first insolvency is rarely buying only code, contracts, or customer lists. The bidder is buying the probability that the working system of the business remains intact long enough to continue earning. That requires a different due-diligence approach from the one used in more conventional hard-asset cases.

At a minimum, a bidder would want to understand:

• code ownership and repository control;
• cloud, API, payment, app-store, and platform dependence;
• the legal basis for continued data use;
• customer concentration and churn sensitivity;
• cyber and security history;
• key-person retention risk; and
• whether the business can realistically move as a functioning whole.

These issues affect pricing, structure, conditions precedent, indemnity logic, integration planning, and bidder appetite. They also explain why some digital businesses may attract interest only through a whole-business continuity strategy rather than through asset cherry-picking.

Creditor and Process Friction

These same features shape the behaviour of creditors, valuers, and committees of creditors.

Where value sits in intangibles, synergies, regulated data use, contract continuity, and staff retention, disagreement becomes more likely. Creditors may find it harder to anchor judgment where the most important value drivers do not resemble conventional collateral. Resolution applicants may discount more aggressively where continuity risk is hard to underwrite. Valuers may differ sharply on the weight to be assigned to customer durability, transfer constraints, platform fragility, and operational dependence.

The law recognises some of this difficulty indirectly through confidentiality, methodology explanation, structured valuation architecture, and third-set mechanisms where valuation divergence is significant. [1] [6] But procedure can only do so much. It improves the conversation. It does not eliminate uncertainty built into the asset profile itself.

This is why creditor-side analysis in such cases cannot stop at headline valuation figures. The issue is often not whether value exists. It is how much of that value survives transfer and under what assumptions.

Comparative Position: What Other Jurisdictions Show

The broad pattern across mature restructuring systems is clear: digital-first insolvency is not treated as a simple problem of selling assets. The more developed systems are strongest where they preserve the enterprise as a functioning whole rather than force immediate break-up.

In the United States, the restructuring architecture is comparatively strong in this respect. Asset sales under section 363, contracts under section 365, and plan-confirmation logic under section 1129 all show a system capable of handling distressed transfer of live businesses rather than only asset liquidation. [7] [8] [9] At the same time, even the US framework does not treat customer data as an ordinary free-sale asset. Section 363 itself constrains sales of personally identifiable information in specified circumstances, which reinforces the broader point that privacy law does not vanish in insolvency. [7]

The United Kingdom also points in a continuity-oriented direction. The administration objective under Schedule B1 of the Insolvency Act 1986 is rescue-focused, and the broader rescue architecture under the Corporate Insolvency and Governance Act 2020 underscores the importance of preserving viable businesses and supply continuity rather than defaulting too quickly to fragmentation. [10] [11]

Canada likewise illustrates the significance of arrangement architecture and interim financing logic in keeping distressed businesses alive long enough for meaningful compromise rather than premature value destruction. [12] [13]

The comparative lesson is not that India should simply copy Chapter 11 or similar systems. It is narrower. More developed systems do not treat digital-first insolvency as a simple asset-sale problem. They treat it as an business-preservation problem shaped by privacy law, contract-transfer rules, financing structure, and continuity risk.

India’s Position Compared with Other Jurisdictions

India’s recent reforms have strengthened the recognition side faster than the preservation side.

That is not a criticism of the valuation reforms. On the contrary, India’s current valuation architecture is now impressively alert to intangibles and synergies. In some respects, the recent Indian valuation reforms are clearer and more express on enterprise-level recognition than the older hard-asset instincts that once dominated practice.

Where the comparative gap still appears is in the broader practical system for preserving continuity in digital-first distress. The comparative systems place strong practical emphasis on keeping businesses alive as functioning enterprises through rescue structures, financing support, contract management, and continuity logic. India is moving in that direction, but the practical pressure point remains whether the process can preserve what it has now become better at recognising.

So the fair comparative statement is this: India has improved significantly in valuation recognition of intangible-heavy and synergy-sensitive businesses, but the harder next challenge is aligning that recognition with transfer-preserving execution.

Sector Differentiation and Cross-Border Dependence

It is also important not to treat all digital-first businesses as one class.

A SaaS business, a marketplace, a D2C brand, a media platform, a fintech-adjacent service, and a regulated data-heavy enterprise may all present different insolvency problems. In some, customer churn is the dominant risk. In others, data-law continuity is central. In others, platform access or licences may determine whether the enterprise still functions. In others, trust and operational teams are the decisive variables.

Cross-border dependence can make the problem sharper. Many digital-first Indian businesses depend on foreign vendors, global cloud infrastructure, app stores, offshore tooling, international payment architecture, or cross-border data flows. That means a domestic insolvency solution may still depend on external private governance systems and non-Indian operational dependencies.

For such businesses, the real control surface may sit partly outside the debtor’s legal perimeter. That does not eliminate value. But it increases diligence difficulty and transfer risk.

The Way Forward

The practical way forward for India has two layers: what can already be done under current law, and what should be considered as reform.

Under current law, insolvency professionals should run these matters as continuity-sensitive cases from day one. Valuers should separate visible enterprise promise from realistically recoverable value and make assumptions explicit. Creditors and committees should test continuity assumptions, not just valuation figures. Bidders should diligence the business as a system rather than as a loose asset pool. Data-heavy cases should be treated as regulated-value cases, not database-sale cases. And sale strategy should presumptively examine going-concern logic before break-up logic.

On the reform side, India would benefit from more practice guidance for digital-first insolvency diligence, stronger assumption-led reporting for intangible-heavy valuation, clearer treatment of data-governance continuity in distress transfers, and more explicit emphasis on preserving integrated value where the business is economically whole even if legally divisible.

The right reform posture is not triumphalist. India does not need a blanket insolvency exemption from data or contract discipline. Nor does it need to romanticise every distressed tech business as rescue-worthy. The more realistic agenda is narrower: better continuity mapping, more explicit assumption discipline, and working habits that are more honest about how digital value is actually kept or lost.

Conclusion

India’s insolvency framework is now much better equipped to see the distinctive problems of digital-first and asset-light distress than it was even a few years ago. The valuation rules no longer encourage a purely hard-asset view of value. The newer architecture recognises tangible and intangible assets together with their synergies, and it strengthens valuation discipline through coordination, standards, format discipline, and report traceability. [1] [2] [3] [4]

But the difficult part begins after that recognition. A digital-first business may still depend on lawful data use, contract continuity, platform access, code control, staff retention, vendor tolerance, and the ability to preserve the business as an operating whole. Those are not side issues. They are often the real determinants of recoverable value.

The most that can fairly be said is this. India has improved the framework. It has not made digital-first insolvency easy. The legal system now sees the problem more clearly. Whether value is actually preserved will still depend on how carefully the process handles continuity, permissions, transferability, operational control, and execution in the real world.

References

Disclaimer: This article is published for academic and educational purposes only. It does not constitute legal advice or a legal opinion. It was prepared with AI assistance and reviewed before publication. Readers should consult the relevant laws, regulations, and cited source materials before relying on any proposition discussed here.