INSUBCONTINENT EXCLUSIVE:
The insolvency code replaced a web of archaic laws, some dating back a 100 years.India's new bankruptcy law has instilled fear among
delinquent borrowers and prompted several reluctant founders to repay outstanding debt due to the risk of losing their company, according to
its insolvency regulator."There is a perceptible difference in the behavior of borrowers and lenders," M.S
Sahoo, chairman of the Insolvency and Bankruptcy Board of India, said, referring to the period since the introduction of Insolvency and
"The stakeholders know that the firm goes into liquidation if they fail to arrive at a resolution plan within the specified time."Companies
facing bankruptcy petitions have reportedly cleared dues of as much as 830 billion rupees ($12 billion) with creditors, Sahoo said in an
interview at his New Delhi office last week
This will support growth by improving capacity utilization and rescuing failed businesses, he said.The insolvency code replaced a web of
archaic laws, some dating back a 100 years, and helped India jump 30 points to make it to the top 100 countries in World Bank's ease of
The new law is key for Prime Minister Narendra Modi to wipe out bad loans and boost growth in Asia's third-largest economy.The law
empowers lenders to drag companies that have defaulted for 90 days on debt exceeding 100,000 rupees to the bankruptcy court which then
places it under an administrator to examine a revival or an outright sale
If a plan is not worked out within three quarters, then the company's assets get liquidated
The objective was to bring debt-laden companies back on their feet and help banks free up $210 billion of stressed assets for lending.A
report by the Reserve Bank of India estimates that gross bad-loan ratio may increase to 12.2 percent by March 2019 from 11.6 percent in the
previous year, limiting bank's ability to lend to businesses.(India is also planning regulations on cross-border insolvency to pursue
foreign assets of a defaulting company.)Next PhaseThe government is also working to put in place, as early as next month, new rules to hold
accountable individuals, who stood guarantee for loans to a company, in case of a default
The scope of the regulation would later be expanded to include individual businessmen and eventually every private citizen.India is also
planning regulations on cross-border insolvency to pursue foreign assets of a defaulting company
It is working on the model cross-border insolvency law adopted by the United Nations Commission on International Trade Law to harmonize
cooperation between countries.Work on that front has already begun, Sahoo said, adding the government would need to amend the law to
incorporate the proposed changes.Even as the government tries to widen the scope of bankruptcy law, bitter court battles have bogged down
efforts to clean up bad loans through the new code and companies are missing the 270-day deadline for resolution
The government is running against time to fix the legal and operational issues that keep cropping up and has tweaked the norms several
times."If you are flying an aircraft at 30,000 feet and it has developed a snag, you don't have the luxury to come down to the ground and
"Laws need to be made as and when the market needs it
If you do not respond promptly the loss is much more."
