This study is a serious attempt to understand the impact of the code on the economy and how it has changed the relationship of corporate debtor and creditor. Besides that this study will analyse the areas which needs serious consideration by the government in national as well as international context.
Earlier Insolvency laws in India were not consolidated, that has led to uncertainty amongst the creditors as well as debtors. The credit market in the country was not flourishing. India is one of the youngest economy of the world which is the house for plethora of entrepreneurs. Yet these drivers of the economy is facing the heat of the financial institution in form of non-availability of credit. The Insolvency and Bankruptcy Code, 2016 (Code) has changed the whole dynamics and disrupted the credit market of the country. On one hand, it has brought certainty and uniformity in terms of law and legal proceeding and on the other, it has rebuildthe trust of the creditors and encouraged them to infuse capital in the market. To an extent code has met its objective but it has long distance to cover and stay relevant in the changing dynamics of the global business.
The limited liability company is a contract between equity and debt. As long as debt obligations are met, equity owners have complete control, and creditors have no say in how the business is run. When default takes place, control is supposed to transfer to the creditors; equity owners have no say. This is not how companies in India work today. For many decades, creditors have had low power when faced with default. Promoters stay in control of the company even after default.
Table of Contents
1. CHAPTER I: AN INTRODUCTION TO PRETEXT OF INSOLVENCY LAWS
1.1 Relevance of the Study
1.2 Object of the Study
1.3 Scope of the Study
1.4 Research Methodology
1.5 Research Questions
1.6 Achievement of a Sound Bankruptcy Law – IBC, 2016
1.6.1 Avoid destruction of value
1.6.2 Drawing the line between malfeasance and business failure
2. CHAPTER II- CREDITORS – KINGPINS AND ITS POWER CONUNDRUM
2.1 Classification of Creditors: Discrimination or Intelligible differentia
2.1.1 International Perspective
2.1.2 Mustering the Constitutional Mandate
2.2 Classification of Creditors on the basis of nature of debt is sine qua non for insolvency laws
2.3 Economic Rationale behind treating the Operational Creditors and Financial Creditors differently
2.4 Commercial wisdom of Committee of Creditors – An Unassailable Right
2.4.1 Legislative Scheme to leave commercial decision on Committee of Creditors
2.4.2 Committee of Creditors deals with all the commercial decision of a resolution plan
2.5 Conclusion
3. CHAPTER III- PROMOTER/ GUARANTOR – CREDITORS – SUBROGATION: A DILEMMA
3.1 Right of creditor vis-à-vis the guarantor
3.1.1 That the contract of guarantee is an independent contract
3.1.2 That there is no discharge of guarantor under the Indian Contract Act, 1872
3.2 Rights of guarantor vis-à-vis the corporate debtor
3.2.1 The proceedings under the IBC are not recovery proceedings
3.2.2 In any case, IBC will prevail over Contract Act
3.3 Guarantor Liability under Moratorium Period
3.4 Conclusion
4. CHAPTER IV - HISTORY AND EVOLUTION OF CROSS BORDER INSOLVENCY – A MEASURE OF GLOBAL HISTORICAL DEVELOPMENT
4.1 Jurisprudence and Prominent Principle of Insolvency Law
4.1.1 Maximisation of Asset Value
4.1.2 Universalism vis-à-vis Territorialism
4.1.3 Sovereignty is too strong yet too weak
4.4 Modified Universalism and Co-operative territorialism
4.5 Forum Shopping
4.6 UNCITRAL Model Law vis-à-vis Indian Insolvency Law committee Report on Cross Border
4.7 Insolvency Law Committee submits its 2nd Report on Cross Border Insolvency
4.7.1 Arguments in Favour of Model Law
4.7.2 Intricacy involved in Cross Border Insolvency
4.8 Case Study of Insolvency proceeding related to Multi-National companies
4.9 Suggestions
4.10 Solution to the Conundrum of Group Companies’ Insolvency
4.11 Conclusion
5. CHAPTER V - PRE – PACK: A STEP FORWARD TOWARDS REVIVAL
5.1 The rise of the pre-pack
5.2 Advantages and concerns
5.2.1 Efficiency
5.2.2 Fairness and expertise
5.3 Controlling the pre-pack
5.3.1 The ‘managerial’ solution: a matter of expertise
5.3.2 The professional ethics solution: expertise and fairness combined
5.3.3 The regulatory answer
5.3.4 Evaluating control strategies
5.4 Pre – Pack: A Blueprint for India
5.5 Proposed pre-packaged mechanism for India:
5.6 Conclusion
Research Objectives and Themes
This study aims to critically analyze the evolution and implementation of the Insolvency and Bankruptcy Code (IBC), 2016 in India, specifically focusing on the treatment of creditors, the rights of guarantors, and the necessity of establishing a robust cross-border insolvency and pre-packaged insolvency framework in the country.
- The power dynamics and commercial wisdom of the Committee of Creditors under the IBC.
- The legal and economic justification for the differentiation between financial and operational creditors.
- The liability and subrogation rights of promoters and guarantors within the insolvency resolution process.
- The importance of adopting the UNCITRAL Model Law to address trans-national insolvency complexities.
- The feasibility and implementation strategies for introducing pre-packaged insolvency mechanisms in India.
Excerpt from the Book
1.6.2 Drawing the line between malfeasance and business failure
Under a weak insolvency regime, the stereotype of “rich promoters of defaulting entities” generates two strands of thinking:
a) the idea that all default involves malfeasance and
b) The idea that promoters should be held personally financially responsible for defaults of the firms that they control.
Some business plans will always go wrong. In a growing economy, firms make risky plans of which some plans will fail, and will induce default. If default is equated to malfeasance, then this can hamper risk taking by firms. This is an undesirable outcome, asrisk taking by firms is the wellspring of economic growth. Bankruptcy law must enshrine business failure as a normal and legitimate part of the working of the market economy.
Limited liability corporations are an important mechanism that fosters risk taking. Historically, limited liability corporations were created with the objective of taking risk. If liability was unlimited, fewer risky projects would be undertaken. With limited liability, shareholders have the ability to walk away, allowing for greater exploration of alternative business models. Since exploration benefits society through risk taking, it is important to protect the concept of limited liability, which bankruptcy law must aim to do.
Summary of Chapters
CHAPTER I: AN INTRODUCTION TO PRETEXT OF INSOLVENCY LAWS: This chapter introduces the core concepts of insolvency, explaining why the previous regulatory frameworks were insufficient and how the IBC, 2016 aims to address value destruction and distinguish between business failure and malfeasance.
CHAPTER II- CREDITORS – KINGPINS AND ITS POWER CONUNDRUM: This chapter examines the central role of creditors in the IBC, discussing the classification of financial versus operational creditors and emphasizing the unassailable commercial wisdom granted to the Committee of Creditors.
CHAPTER III- PROMOTER/ GUARANTOR – CREDITORS – SUBROGATION: A DILEMMA: This chapter explores the complex legal relationship between creditors, corporate debtors, and guarantors, clarifying how the IBC affects subrogation rights and the enforcement of personal guarantees.
CHAPTER IV - HISTORY AND EVOLUTION OF CROSS BORDER INSOLVENCY – A MEASURE OF GLOBAL HISTORICAL DEVELOPMENT: This chapter traces the global development of cross-border insolvency laws and advocates for India's adoption of the UNCITRAL Model Law to manage transnational corporate insolvency effectively.
CHAPTER V - PRE – PACK: A STEP FORWARD TOWARDS REVIVAL: This chapter investigates the efficiency and risks of pre-packaged insolvency processes, proposing a roadmap for incorporating such a mechanism into the Indian legal system to expedite debt resolution.
Keywords
Insolvency and Bankruptcy Code, Committee of Creditors, Corporate Debtor, Financial Creditor, Operational Creditor, Cross-Border Insolvency, UNCITRAL Model Law, Pre-pack, Resolution Plan, Guarantor Liability, Subrogation, Commercial Wisdom, Insolvency Resolution, Bankruptcy, Economic Rationale.
Frequently Asked Questions
What is the primary focus of this research paper?
The paper primarily focuses on the functional aspects of the Insolvency and Bankruptcy Code (IBC), 2016, analyzing how it has changed the landscape of debt resolution in India, the role of creditors, and the need for further legal reforms regarding cross-border insolvency and pre-packaged deals.
What are the central themes discussed in the work?
The central themes include the commercial power of the Committee of Creditors, the differentiation between creditor classes, the legal implications of personal guarantees in corporate insolvency, and the necessity of harmonizing Indian law with international standards like the UNCITRAL Model Law.
What is the primary research objective?
The objective is to evaluate the impact of the IBC on the Indian economy and creditor-debtor relationships, while identifying critical gaps in the current framework that hinder efficient cross-border and pre-packaged insolvency resolution.
Which research methodologies are employed?
The author primarily utilizes the case law method to analyze legal principles and the analytical method to interpret legislation, international reports, and the effectiveness of current insolvency provisions.
What content is covered in the main body of the paper?
The main body covers the theoretical foundations of insolvency law, a detailed analysis of creditor hierarchies, the legal conundrum of guarantor subrogation, the history of global cross-border insolvency, and a comparative study of pre-packaged insolvency systems.
Which key terms characterize this research?
Key terms include IBC, Committee of Creditors, Cross-Border Insolvency, UNCITRAL Model Law, Pre-pack, Commercial Wisdom, and Financial vs. Operational Creditors.
How does the paper propose handling the group companies' insolvency?
The paper suggests a pre-mediated approach where a company, at the time of incorporation, declares the insolvency law that will govern it, thereby eliminating forum shopping and conflicting jurisdictional claims.
What is the author's stance on the recognition of foreign proceedings?
The author argues strongly that the current dependence on bilateral treaties is insufficient and advocates for the formal adoption of the UNCITRAL Model Law to ensure consistency, predictability, and to prevent the erosion of asset value in transnational insolvencies.
- Citar trabajo
- Chaitanya Verma (Autor), 2020, National and Trans-National Framework of Insolvency and Bankruptcy Code, Múnich, GRIN Verlag, https://www.grin.com/document/985536
