Duff & Phelps Restructuring LLP Partner Ashwini Mehra Shares His Expert View on Insolvency and Bankruptcy Code in the Economist

A new bankruptcy code entered into force in India on May 2016, and after almost two years of preparation, governs the final rulings on its first big cases this month. Tycoons who had once fobbed off bankers are now getting turfed out of companies they had held onto for decades despite repeated defaults. As a result, the outlines of a fresh era in Indian capitalism are taking shape. A dozen large firms, that were in effect pushed into bankruptcy by the authorities last summer and given nine months to sort out the mess, have attracted winning bids from far and wide. Just this dozen big cases account for around 2.2 trillion rupees ($33.4bn) of bank debt. That is about a quarter of all the loans banks have already admitted are unlikely to be repaid. A further pipeline of 28 cases is due to be resolved by September, accounting for another 2trn rupees or so of bad loans. These include coal-fired power plants that are uneconomical to run, for which liquidation is a real possibility. All told, over 1,500 companies are said to have been deemed insolvent by the courts. The cases of several thousand more are pending.

In the context of the Insolvency and Bankruptcy Code, Duff & Phelps Restructuring LLP Partner Ashwini Mehra says, “Promoters now approach banks well ahead of potential insolvency, in the hope of working something out before it is too late. That is an encouraging sign that the balance of power between debtors and creditors is shifting.”

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