Bankruptcy Code: the God who fails …

Unsurprisingly, few ministers and officials are talking about it these days, but surprisingly, there is very little angst about the God who fails.

By PN Vijay

The Insolvency and Bankruptcy Code (IBC) has been hailed as one of India’s most transformative reforms of modern times. It aimed to revive businesses, ensure preservation of assets and capital, and be fair to all stakeholders. He was supposed to facilitate business in India; Such was the hope and the hype that the world applauded us for and we catapulted from 108th in 2018 to 52nd in 2019 in the Ease of Doing Business Index.
Now, after three years, most of us are less convinced; Opinion is now shifting from the more charitable “it is still evolving” to a more brutal “a good law spoiled by a terrible implementation”.

The figures are disappointing. In terms of relaunching and safeguarding companies, until December 2019, out of the 3,312 files returned for the CIRP (Corporate Insolvency Resolution Process), only 190 were closed by resolution and 780 companies were liquidated. Balance files are either work in progress or have been withdrawn by mutual consent. This is an 80% death rate. As for the lenders getting their money back, out of the 970 total cases closed by liquidation or resolution, the lenders only got back Rs 1.73 lakh crore and had their hair cut for a huge crore. of Rs 8.19.

Much has been said about reviving a Bhushan Steel or a Monnet Ispat. However, these seven “poster boy” cases out of the 970 listed above represent only 1% of the total number of cases, although in terms of value they are considerably higher. In terms of time, the 180-day period is rarely followed, and in fact, the National Company Law Appellate Tribunal (NCLAT) and the Insolvency and Bankruptcy Board of India (IBBI) have made very harsh comments about the delays.

Last but not least, in terms of jobs lost and recovered, the numbers are hard to come by, but it is estimated that around 1 million jobs have been lost due to business closures. So in a nutshell, anecdotally, the Code largely failed in all of the goals it set for itself – reviving businesses, protecting public funds and preserving jobs.

Unsurprisingly, few ministers and officials are talking about it these days, but surprisingly, there is very little angst about the God who fails.

Let’s dive a little deeper and analyze why “despite the good intentions, the CIB has been the way to hell”. In my opinion, the main reason is the mindset of the lenders which are mainly public banks and, in a few cases, private banks. These bankers have already written off these loans and, therefore, they are very reluctant to participate in a complex stimulus package which requires patience and often the commitment of some working capital; in short, their attitude is “the faster we kill this one and bury the corpse, the better”. The negative attitude of banks towards risk is, in my opinion, the most important reason for the failure of the CIB.

The second reason is the lack of expertise among resolution professionals to perform what is surely a very complex task of restarting a business that has fallen ill. Even for industry experts and management gurus, relaunching sick businesses is a challenge. And these gentlemen – PRs, as we call them – are mostly business secretaries who have little or no knowledge of how businesses manage and make money, let’s put aside how to revive them; the result was a disaster. There is very little trust between existing owners and PRs, and the CIRP period escalates into a period where the “sick” business is getting sicker and sicker by the day.

It is pathetic how relatively good companies are being “killed” by PRs who do not know how to handle the situation. It is said that “the war is too important an issue to be left to the generals”. Likewise, business revival is too important an issue to be left to PRs whose only claim to fame has been to faithfully write agendas and minutes of board meetings.

As if that weren’t enough to “get rid” of a business, there is the legal system that ensures that even if a business has a chance to be reborn, excessive delays make it nearly impossible. Lawmakers, in their infinite wisdom, have decided that 180 days is enough to complete a resolution process and that in extreme cases it can take 270 days. But, in practice, we find that the CIRP almost never ends in 180 days, and regularly goes beyond even 270 days. But who are we “little mortals” to question the honorable judges who sit on the National Company Law Tribunal and regularly grant adjournments?

The former chief justice, in his very first speech after joining the Rajya Sabha, lamented that the Indian justice system has collapsed. This is another example of this collapse. No wonder every investor who flies over India and lands in China or Vietnam has only one complaint: India’s judicial system can never enforce contracts. The CIB is the victim of this malaise.

Is there a solution or do we philosophically accept this failure as one of the many troubles of a system that cannot enforce its own laws? I am optimistic and believe that things can be done to achieve the mission that CIB has set for itself.

We need to get lenders to engage in the stimulus process. The Ministry of Finance and the Reserve Bank of India (RBI) should track down the heads of banks and tell them that their performance will be judged on their ability to revive the CIRP companies and to give back public money and jobs; in short “read the riot law to CEOs of banks”.
Second, we need to strengthen the PR system tremendously; we could – where the loans involved are greater than 5 crore rupees – have an appointed PR team which could include management consultants, technical experts, etc.

Third, we need to get the Supreme Court to set very well-defined deadlines for the judges who sit on the NCLT to rule on issues within the 180-day statutory deadline. We have all been calling for bankruptcy law for many years in the seminar rooms; we have one but we messed up the implementation. Let’s try to correct things.

The author is an investment banker and former organizer of the BJP Central economic unit. Opinions are personal

Be live Stock prices of ESB, NSE, American market and last NAV, portfolio of Mutual fund, Discover the latest IPO News, The best performing IPOs, calculate your tax by Income tax calculator, know the market Best winners, Top losers & Best equity funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest news and updates from Biz.

Source link

About Susie Jones

Check Also

Resumption of construction of the $ 130 million Marina Square downtown project

BREMERTON – Construction on Marina Square, the $ 130 million housing development on the Bremerton …

Leave a Reply

Your email address will not be published. Required fields are marked *