The Insolvency Code is Reformed in India
By Aditya Kumar, Ashwani & Associates, Chartered Accountants
While the banking regulations in India were providing various restructuring mechanisms to address the mounting debt problem, ranging from CDR, SDR or the Scheme for Sustainable Restructuring, the Government has enacted the Insolvency & Bankruptcy Code in line with what exists in most developed countries.
The Reserve Bank of India, in June 2017, instructed the banks to take this route for the resolution of non-performing debts amounting to USD 40 billion.
The new Code aims to move cases of company failure into a single forum, replacing an archaic system of overlapping regulations under which banks, company promoters and other creditors could all initiate competing proceedings in different courts, tribunals and regions.
The World Bank estimated it took 4.3 years on average in India to resolve insolvency under the old laws, more than twice as long as China. Moreover, average recoveries were just 25.7 cents on the dollar, one of the worst among similar sized economies.
The new regime aims to significantly boost recoveries and puts a firm timeline (270 days) around case resolution in the hope that this will help clean-up bank balance sheets and spur lending.
India’s central bank, the Reserve Bank of India, has already told banks to push 12 of the largest defaulters into insolvency, but experts worry the framework is largely untested and hampered by a shortage of experienced bankruptcy professionals.
If the first batch stalls the judicial process, there will be a question over the remaining USD 150 billion of stressed assets. This kitty will swell if telecom loans join the nightmare, making it even more important for the government and all stake holders to make this law a success and help the banks to improve their leveraged position.
Aditya KumarAshwani & Associates, Ludhiana, India
Aditya Kumar is a Chartered Accountant and a Lawyer who specialises in VAT/GST as the Indirect Tax Partner of Ashwani & Associates. He provides consulting in cross-border business to clients in India and abroad. He has a vast experience and working knowledge of all aspects of service tax, trade law, VAT, GST and the like. Serving clients from national and international companies and having worked in every existing kind of indirect tax branch, he offers pragmatic solutions on a cost-effective basis. He is also the author of the first book to be published on GST in India.
ashwani & associates is an audit, tax and consulting firm in India with three offices. Our clients range from emerging entities to large corporations with billions of dollars in revenue. They include privately-held businesses, not-for-profit organisations and publicly-traded companies. They support a local, national and international client base.
Published: Winter 2017 l Photo: Marco - Fotolia.com