Bankruptcy reforms to ease gridlock
A group of government-appointed advisors have recommended sweeping changes to India\'s outdated and over-burdened bankruptcy system.
Mumbai : A group of government-appointed advisors have recommended sweeping changes to India's outdated and over-burdened bankruptcy system.
The changes would be the most ambitious overhaul to date of rules governing the liquidation or revival of companies in India. Hitherto, there is no single bankruptcy code leaving the cases languishing for decades.
The proposals, to be handed over to the Finance Ministry as early as Monday, will impose deadlines for the first time and establish a network of insolvency professionals to lighten courts' workload and tackle delays, TK Viswanathan, chairman of the Bankruptcy Law Reform Committee, said.
Under current rules, even deciding whether to save or liquidate an ailing company can take years, leaving it in the hands of managers who can - and do - strip assets with impunity. Under the proposed changes, a decision would have to be reached in 180 days - even 90 days for fast-track applications, Viswanathan said.
"The whole essence of our exercise is that everything is done within time," he said. Foreign and domestic investors say the difficulty in exiting ventures can deter them from entering.
Cases such as the protracted collapse of liquor tycoon Vijay Mallya's Kingfisher Airline empire have burnt investors. The airline was grounded in 2012 with some $1.5 billion in debt and its shares are now worthless, but creditor banks seized his former Mumbai headquarters only this year. The fate of his Goan villa is stuck in a prolonged court tussle.
Troubled companies in India, or their creditors, largely turn to the Official Liquidator, who administers assets and oversees liquidation. Banks can also turn to separate Debts Recovery Tribunals (DRT), partly staffed by officials on assignment from the banks themselves and overseen by the Ministry of Finance.