Tricky Times Ahead

The President of India has given his assent to the ordinance to amend the Insolvency and Bankruptcy Code (2016). The ordinance is meant to keep out willful defaulters and several other categories of people from bidding or taking over an insolvent company through the resolution process. Section 29A is the all important section in this regard.

Apart from "willful defaulters", it seeks to bar "those who have their accounts classified as non-performing assets for one year or more, and are unable to settle their overdue amounts include interest thereon and charges relating to the account before submission of the resolution plan". That bit alone will keep most current promoters from rebidding for their companies. While that seems a moral high ground, it raises two questions. What if the company got into trouble because of external factors like policy changes or global disruptions?

Second, what if the promoter were willing to offer a better price than the other bidders to retain control of his company and has been able to raise enough finances to do so? In most other countries, promoters and management are allowed to bid to retain control during bankruptcy proceedings. Maybe the government of India could have put in other safeguards without this clause.