Bhusan steel and Indian Bankruptcy CodeMay 29, 2018
The record Bankruptcy sale of Bushan steel to Tata steel marks the better adoption and smoothening of the Bankruptcy resolution process.
Reasons behind the series of Bankruptcy cases – The Bankruptcy cases are on huge rise because as the company’s debt exceeds its assets and there is no better option to save it so they file for Bankruptcy to settle debts to its creditors legally.
How Bankruptcy code improves the status quo?
- As Bankruptcy code is a time bound process, it has to resolve the cases within 270 days. Else the companies will go for Liquidation
- It will improve the credit culture in India, i.e. now bank are comfortable to extend the loan and genuine borrower will able to get the loan.
A year after its introduction through this code 1988 cases out of 23,300 cases has been disposed off successfully. But still the code remains work in process & few grey areas to be looked upon.
Implication of resolution of Bhushan steel case on cases of similar nature
- It will set a process of the similar company and will end of downturn in banking system.
- It will also lead to more equity to be contributed by promoter and in turn put check on excessive borrowing.
- Also it will put a check on existence of corporate excess and will lead to better control on these firms.
Shortcomings in Bankruptcy code
- There is lack competitive bidding process.
- Procedural uncertainty causes less confidence in the process.
Bankruptcy code marks difference in overall Ease of doing business. It helps in debt relevancy rates. Give the power to the creditor in case of default by the debtor. Although there are few shortcomings, but it is commendable moves for improving the credit cycle which in turn will help our economy.