Is Insolvency Act a Game Changer? 10 Popular Indian Financial Bloggers Voice their Opinions

The Insolvency and Bankruptcy Code (IBC) is a more than a year old now. It is apparently one of most significant reforms that was implemented by the government. Through IBC, a huge change was brought about in the power equation between debtors and creditors. Earlier, it took years for insolvency resolution to take place, but now with the new framework of the Insolvency Act, resolution is a time bound process. As per IBC, the case admitted has to be resolved within 270 days, if not the company goes into liquidation. Best of all, the management control of the entire resolution process is with a resolution professional and not with the promoters.

We asked 10 popular Indian financial bloggers about their views on the Insolvency Act and what they think will be its impact? Here’s what they have to say:

1. Shabbir Bhimani

The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the wonderful act present government has taken upon. Being an investor in the equity market for a very long time, every company that has done badly for investors is primarily for debt. Some companies genuinely couldn’t foresee the bad business environment but majority of them take up so much of debt because there was very little bank can do afterwards to recover it. Now with the IBC, management can lose the control of the company if they don’t pay back the loan.

The best part is, government made sure owners of such companies aren’t allowed to participate in the bidding process for the asset of the companies. If it was allowed, it would open up other gate of taking loan, declare bankrupt and then repurchase their own assets at lower prices giving haircut to banks.

The repayment of loan becomes necessary for the companies now. We have already seen good signals about such law where Reliance communication shut off its operations to pay back to the extent it could to keep the ADAG brand value intact. Suzlon Energy took the needed steps to turn the business around.
There will be dark side of it as well and companies are trying to find loopholes, but Government is actively working towards making sure those aren’t being exploited.

About Shabbir: A trader, investor, consultant and blogger – he dons many hats. He also mentors Indian retail investors so that they can invest in the right stock at the right price and at the right time.

Website: https://shabbir.in/

Facebook: https://www.facebook.com/shabbirbhimani

Twitter: https://twitter.com/shabbirbhimani

2. Sarath Babu

When things are not done correct in the very beginning, it leads to various distractions and chaos. For instance, we witnessed how few jewellers have defrauded the banks by raising loans of few thousands of crores and vanished overnight. This could have been set right in the very beginning, only if the officers concerned exercised due diligence prior to sanctioning the loans. We are now hearing “Know Your Employee” should be given more importance instead of “Know Your Customers”.

Insolvency do not have a say in this though it sadly gets involved in the end where the so-called business tycoon announces himself as “Insolvent”.

This situation arises due to NPAs (Non-Performing Assets) which is found only in the banking sector because insolvency revolves around money and implies “no money”.

My suggestion:

1. Banks should take collateral even from well-known brands/corporate before sanctioning a huge loan after ensuring that the collateral is genuine and is free from any encumbrance.
2. Banks should not sanction loan which is beyond the means of repayment for a brand.
3. NPAs should be tracked from the very beginning and due measures should be taken to address them at the earliest rather than allowing it to grow to a considerable amount.
4. Insolvency even though is the last option shouldn’t be allowed to be exercised unless required and must accompany with imprisonment rather than allowing a person to go free.

About Sarath: A blogger from Chennai, Sarath has been blogging since 2010 on various topics including Banking, Insurance, BPO and Press.

Website: http://www.sarathbabu.in/

Facebook: https://www.facebook.com/sarathbabu.s

Twitter: https://twitter.com/aryansarath

3. Vikas Agarwal

Insolvency act is one of the most powerful acts in Indian history. It can solve banks’ issues in a dramatic way, as lot of companies went into NCLT after this act and many are at their final phase of solution. To make the process faster, insolvency act should be made a time slot bidding process by which you get interested bidder’s bid at a time and resolution to the problem can be brought faster. It will make the process smooth and clear for everyone, and the government shall be able to monitor the financial condition of the companies who are bidding as they can become a bad debt after 5 years. If implemented well then it can solve many glitches of the Indian banks & government and will surely boost the economy.

About Vikas: He is the Founder and CEO of Finaacle.com, an investment advisory website. His blogs focus on simplifying the art of investing. He also shares his experiences as an investor and the lessons he learnt from some of the greatest investors of all time.

Website: http://www.finaacle.com/

Facebook: https://www.facebook.com/finaacle/

Twitter: https://twitter.com/finaacle

4. Pankaj

India now ranks 136 out of 189 countries in the World Bank’s directory on relieve of resolving economic failures. To strengthen the active structure and frame by creating a single law for liquidation and economic failure, ‘The Insolvency and Bankruptcy Code’ (IBC) was introduced in ‘Lok Sabha’ in December 2015. Then on 5^th May 2016, it was passed by Lok Sabha and on 28^th May 2016, it received acquiesce of Indian President. For resolving economic failures at present, the bankruptcy code is a one stop solution for it. In it, the expenditure and time is minimised, and the code will be capable to look after the interests of small scale investors. The Code was amended in 2017.

For entities, companies and partnership firms, the code summarizes some separate bankruptcy resolution developments. Either the nonpayer or the creditors can initiate the procedure. The procedure will have to be completed in 180 days for companies and if a majority of the creditors have the same opinion then it may be extended by 90 days. To supervise the liquidation happenings in the country, the code creates the ‘Insolvency and Bankruptcy Board of India’. Including the delegates from the Ministries of Finance and Law, and the Reserve Bank of India the Board will have 10 members. Only the licensed professionals will manage the insolvency procedure and they will also manage the benefits of the debtor. To manage the course of insolvency decision, for individuals and companies, the Code proposes two separate committees: 1. The National Company Law Tribunal for Companies and Limited Liability Partnership firms, 2. The Debt Recovery Tribunal for individuals and partnerships.

The act aims at early on classification of monetary breakdown as well as maximising the benefit value of bankrupt firms. It also has conditions to address cross border liquidation through joint agreements. It will not only develop the ease of doing business in India, but also help in a better and quicker debt improvement method. Moreover, it will be a helpful means for international creditors and investors.

About Pankaj: He writes blogs for News Patrolling, a leading Indian News Website that targets sectors like Entertainment, Politics, Sports, Lifestyle, Automobile, Technology, and much more. 

Website: http://www.newspatrolling.com/

Facebook: https://www.facebook.com/newspatrollingindia

Twitter: https://twitter.com/newspatrolling

5. Karan Batra

I think the Insolvency Act is a very good initiative of the Govt. through which they can ensure that cases like Kingfisher don’t happen again.

This will have a very positive impact as the no. of scams with public money will get reduced. Rather than waiting for the company owner to declare itself insolvent (which in most cases does not happen), the creditors can now drag the defaulting companies to court if their dues are not paid. The Court looks into the matter seriously and appoints an Insolvency Professional who tries to revive the company and/or sell the company to somebody who is proficient to do the same.

This is certainly a very good law wherein any company who defaults on loan payments can be easily dragged to court and money recovered by selling some/ all of the assets of the company.

About Karan: A Chartered Accountant by profession, he is also the founder of charteredclub.com. He provides consultation to taxpayers across the country and helps them to understand their tax liability and reduce their tax burden.

Website: https://www.charteredclub.com/

Facebook: https://www.facebook.com/CharteredClub/

Twitter: https://twitter.com/charteredclub

6. Sandeep Kanoi

The Insolvency Act came into force with the ultimate objective of consolidating and amending the legislation with respect to the insolvency of incorporated and unincorporated bodies and natural persons. The aim of this Act is to regulate the liquidation or bankruptcy for enabling the affairs of the businesses to be managed for benefit of the creditors.

The new law lays down the timeline for recovering from the defaulters unlike opaque and discretionary ways in the previous laws, putting a cap on the bank loans to the conglomerates, and increasing realization for minimizing asset-liability mismatch is encouraging a new landscape for Indian banking system.

Now business families would need to do their best for protecting their names. If your name is spoiled, you’re not going to get money anymore. Incidentally, the law also provides for suppliers for initiating the insolvency proceedings. If the resolution isn’t arrived at within 180 to 270 days, assets need to be auctioned off for the purpose of recovering dues.

Unlike the legislation before, the Insolvency Act looks to redeem the insolvent companies with the help of administration instead of liquidation. The new law focuses on assisting the insolvent bodies whose position is redeemable for continuing operating as the going concerns so they could meet the financial obligations for satisfying their creditors.

Inconsistencies in the insolvency and the bankruptcy law were the missing links with respect to the debt recovery regime in India. The new law would foster a balance of rights between borrowers and creditors and reinforce the position of the creditors.

About Sandeep: He writes for Taxguru, a website that updates people with latest news on Circular, Notification, Amendments, Case Laws, etc.

Website: https://taxguru.in/

Facebook: https://www.facebook.com/taxguruin

Twitter: https://twitter.com/@taxguru_in

7. Pardeep Goyal

The idea to create a single law for insolvency and bankruptcy by consolidating all the existing frameworks under one umbrella was long due and need of the hour for Indian companies – large, small, or startups.

If you looked at the debt recovery mechanism in our country, prior to this legislation, it took an average of 4 years to resolve insolvency. That’s too long and pretty bad, especially when the Prime Minister and we as a nation have been pushing for improving the ease of doing business in India.

Since the insolvency and bankruptcy law is looking to cut down the time to less than a year, the immediate impact will be felt at four levels:

• Faster debt recovery, infusing the much-needed cash into the banks/creditors.
• Improvement in ease of doing business.
• Rise in confidence among Investors & Creditors (domestic & international), leading to growth of investments in India.
• Genuine promoters & businesses with bad balance sheets, getting a second opportunity to solve their mess and turn around their businesses.

If you observe, most of the defaulting companies that have been referred to National Company Law Tribunal under IBC, seem to come across steel, power, cement, and infra sectors. If these companies get sold at decent prices (bids from interested parties), banks which happen to be the main creditors will get infused with lot of cash amounting to thousands of crores.

At a time when all the public-sector banks are facing financial and credibility crisis, this could come as a huge relief, preventing further deterioration in profits.

Here, the efforts of government to send bad loans involving thousands of crores to IBC needs to be appreciated, given the positive payoff for India’s economy. Secondly, the bankruptcy courts need to be commended for not delaying the settlements of referred companies despite pressure from promoters of certain firms.

Lastly, some amendments to the insolvency and bankruptcy law that are being proposed by the government like creditors (lenders) getting to decide whether a company needs turnaround or liquidation of assets by 66% vote, instead of the current 75% vote, will make the decision making even faster. Secondly, treating home buyers as creditors so that they can take builders to bankruptcy court for defaulting on their flats/homes is also a much-needed welcome move for home buyers.

Overall, I would say that crony capitalism which is one of the major reasons why India is not realizing its true economic and business potential is being tackled head on with insolvency and bankruptcy law, whose positive fruits India will get to see in the near future.

About Pardeep: Pardeep writes for Credit Frog with a vision to help people save a lot of money by using credit cards that are optimized for savings.

Website: https://www.creditfrog.in/

Facebook: https://www.facebook.com/creditfrog/

Twitter: https://twitter.com/@pardeepg/

8. Anand Vijayakumar

Even though this insolvency act is a step in the right direction, with the volume of bad loans especially to large businesses that have borrowed in 3 or 4 digit Crores, I feel this is just not enough for a few reasons:

1. Does not stop further piling of bad loans – banks that ask for a dozen different types of documents from individuals for a 5 lakh personal loan are disbursing 100 Crore loans without sufficient collateral. Lending rules must be tightened & strict penalties levied on banks for breaking rules. While we are trying to clean up the spilled water with a cloth, we haven’t really done anything to fix the hole in the pipe.
2. Timeline is too Long – the resolution duration is 180 days with an option to extend another 90 days, that’s almost 9 months. During this period, we are contemplating if or whether to liquidate a defaulter’s assets. Does a normal individual get this luxury if he/she doesn’t replay his loan EMI for 9 months?
3. Loan restructuring is still an option – as part of the insolvency resolution companies can convince the lender bank or banks to further extend loans. So, a kingfisher type scenario where someone gets a fisher 2k crore loan to revive an existing 5k crore default is still possible.

With the volume of bad loans our Indian banks have, if it is going to take 9 months to start liquidation and perhaps another 2-3 months to actually liquidate the assets, banks are looking at years and years’ worth of negotiation before they can recover any sort of money on their bad books. This is all tax payer money used to write off or cover the losses which is unfair because banks have no incentive or reason to mend their behaviour.

It’s high time rules were changed to punish fraud by businessmen & indiscriminate lending by banks – this was my expectation from this act, but the actual outcome is more like a slap on the wrist for a Murder.

About Anand: He has tremendous knowledge about the financial and banking sectors. He writes blogs from risk analysis, insurance to project management.

Website: http://anandvijayakumar.blogspot.in/?m=1

Facebook: https://www.facebook.com/Anands-Banking-Finance-Blog-158868550878386/

Twitter: https://twitter.com/anandvkumar

9. Ashok Agarwal

Biggest Advantage of IBC: “For existing units on the Verge of Death” Instead of deterioration of earlier huge investment as in case of King-Fisher: Assets r Utilized for Better, Long Term & Sustainable Basis.

About Ashok: He is a Chartered Accountant who has been enlightening people about stock market, different means of banking & finance, income tax and service tax.

10. Aditi Choudhary

Insolvency Act is an attempt to hard code the old and ambiguous methods of recovery in case of a debt default by fixing the time frame for the resolution, which is a maximum of 180 days. If no resolution happens within the stipulated time, the assets are sold off to recover the dues.

According to Economic Survey of 2017, overall 20% loans are bad and even though, now, the procedure is clearer, it does not do anything to ensure that no more bad loans are given by the banks in future. Another standing issue that remains is the calculation of the actual worth of the Assets.

Nevertheless, the Insolvency Act was indeed the need of the hour. Speedy recovery of tens and thousands of Crores provided as loans to NPAs is essential for the sustenance of our banking system and overall the economy of India. And, fortunately enough, the Insolvency Act was able to leave the intended impact.

About Aditi: She writes for Slipped in School, which essentially talks about important life skills which were slipped in school. The writer touches various topics in her writing. Some of the topics are Finance, Marketing, Reasoning and Emotional Intelligence.

Website: https://slippedinschool.com/
Facebook: https://www.facebook.com/SlippedinSchool/
Twitter: https://twitter.com/SlippedinSchool
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