India is trying to tighten the rules to prevent roving founders from misusing a bankruptcy law 11 months ago to regain control of the delinquent companies that are sold.
Volunteer offenders, disqualified directors and persons who have been involved in fraudulent transactions are among those who will be barred from bidding by companies in bankruptcy proceedings, according to a draft of the proposed changes that Bloomberg sees. While the Insolvency and Bankruptcy Code is being adjusted to stop misuse, it will not completely ban the founders from the sale process, a government official told reporters in New Delhi on Wednesday, asking not to be identified by citing rules.
A change in the law, which was approved by the Indian parliament in 2016, comes at a time when approximately 50 of the country's largest defaulters face insolvency proceedings and can be sold by designated professionals. the court during the next year. That required an executive order to prevent "undeserving" people from regaining control of these companies through the "back door," according to the document seen by Bloomberg. Some owners also wrote to the government blaming adverse trade cycles for their inability to pay loans and saying it would not be fair to forbid them from the bidding process.
The Indian cabinet approved an executive order to amend the Insolvency and Bankruptcy Code, which must now be signed by the president, Finance Minister Arun Jaitley said on Wednesday. The modifications must be approved by the parliament at its next session.
A founder or those involved in the management of a company whose account is clbadified as nonproductive beyond a prescribed duration will also not be eligible to submit an offer, according to the document. The creditworthiness, credibility and other relevant parameters of the bidders must be evaluated by the resolution professionals before approving any sale of badets.
Voluntary defaulters are defined as borrowing companies that did not pay while they were able to do so, or those in which the controlling shareholders diverted money or badets.
The changes "will make it harder for unscrupulous promoters," said Kalpesh Mehta, a Mumbai-based partner for financial services practice at Deloitte Haskins & Sells LLP, in an email. "Now there is a real possibility that the promoters may lose control and are no longer in a position to take the creditors."
The regime of Prime Minister Narendra Modi last year revised the Indian bankruptcy laws dating back a century ago. The new law is one of the biggest steps in India's battle to clean up $ 207 billion of stressed badets. The inability to close loss generating companies and collect fees had blocked funds in banks and cushioned loans and investments.
– With badistance from Siddhartha Singh