“INSOLVENCY & BANKRUPTCY CODE ALLOWS US TO MOVE FROM GENGHIS KHAN TO THOMAS ALVA EDISON”
Chennai: “Every one of the stakeholders to the Insolvency & Bankruptcy Code is on the learning curve and those learnings are yet to get codified. Once a few successful transactions are completed, the learnings will get better and the process can be speeded up” stated Dr M S Sahoo in his Inaugural Address at a day-long workshop organized by the FICCI Tamil Nadu State Council earlier today. This day long workshop was attended by practising chartered accountants, company secretaries, lawyers, bankers and realty professionals.
Dr M S Sahoo continued: “The four stakeholders to the Insolvency & Bankruptcy Code… creditors, debtors, insolvency professionals and the regulator [government]… all of us are thankfully on the same page. Besides, each of us are beginning to learn the possibilities by doing it ourselves on the ground. For example, the Resolution Plan by law offers infinite possibilities… in fact, it is left to the imagination of the stakeholders involved. It can take any shape or form. It can mean a buyout, turnaround, mergers, amalgamations… we can write ourselves the mode we see as a possibility. A few transactions are in the process but none of them have completed the timeline of 180 days. So once a few transactions are successfully completed, the learning modes will get documented and we will be able to codify the same”.
Dr Sahoo continued: “The World Economic Forum brings out year after year a document called the Competitiveness Index. The most important component of this Index is the ability of the economy to foster innovation and competition. Economies which score well on these two indexes lead the pack with a per capita GNP of US $17,000/- while the economies which score low on these two indices lag behind with a per capita GNP of US$ 2,000/-. Thus it is clear that efficient economies thrive while the inefficient ones drag. Like the efficient firms drive inefficient firms from the market. Competition and innovation give us growth. We cannot demand growth without competition and innovation or risking failure. We cannot wish away failure, we need to learn to deal with failure.
Genghis Khan had a habit of hanging people who became bankrupt for the third time. We have moved away significantly from this. Today, we recognize that failures can and are the pillars of success. Today, we have Thomas Alva Edison who failed scores of times before he perfected the electric lamp. He recounts that he had discovered scores of ways in which the electric lamp will not function at all. Today, the Insolvency and Bankruptcy Code allows us to move from failure to success… from US $2000 to US $17000”.
Dr M S Sahoo added: “Business is important… because it creates goods and services which have economic value. The World Bank in the year 2015 brought out a study on the ease of doing business in various countries. India was ranked 149 in a total of 200 countries. The study ranked the nations along 3 major criteria… the ease of starting a new business, the ease of continuing a business and lastly, the ease of discontinuing or exiting a business. Insolvency & Bankruptcy is one of the elements in the last criteria. What this allows is to start a business when it can be efficient and allows them to exit when it can no longer continue to be efficient. When businesses can no longer be efficient, it allows exit so that the available resources may be gainfully deployed for the efficient businesses.
It is here that this Code comes to play. It is better to address the issue in the early days of distress and resolve the issue as a going concern rather than wait or delay it to a stage of dissolution when the organization has minimal economic salvage value. The code allows a market-driven, time-bound mechanism to come up with a plan that will benefit all the stakeholders involved. The Code provides for robust, comprehensive mechanism, better than similar mechanisms available elsewhere in the world. The most important point is that. Unlike in the past when government dues ranked first in terms of settlement, under this code, the government dues rank even lower after the unsecured creditors. With a comprehensive written code, time-bound mechanism and all the infrastructural elements in place, it is now for the businesses to take this forward” concluded Dr M S Sahoo.
Chartered Accountant Mr M Razzack recounted that businesses often failed… for competitive reasons and for unscrupulous people, for other reasons. “For organizations seeking liquidation, the expenses for maintaining the office of the Official Liquidator is often enough to ensure that nothing is left for any of the creditors. Under the earlier rule, genuine people were denied an honourable exit. The present code seeks to correct this phenomenon” said Mr Razzack.
Advocate Mr Vikram Vijayaraghavan, Convenor – Finance, Banking, Insurance & Taxation, FICCI stated that the Insolvency & Bankruptcy Code is an important legislation seeking to put an end to a plethora of legislations, procedures and processes which ended up in courts and also consumed enormous amount of time. The present code seeks to address this issue in a comprehensive and time-bound manner.
“In 2015, the World Bank had done a study to determine the average resolution of insolvencies in countries around the world. In UK, this was around a year and in the USA, it was around a year and a half. In India, this was about 4 years and a half to 5 years. The key position is moving away from a debtor in possession to a committee of creditors concept. This is a very important change and a paradigm shift” observed Mr Vijayaraghavan.
Earlier, Mr Ar Rm Arun, Chairman, Tamil Nadu State Council welcomed the gathering and Mr P Murari, IAS (Retd.)., Advisor to FICCI President and former Secretary to President of India provided concluding remarks. Mr Ruban Hobday, Head, FICCI Tamil Nadu State Council delivered a vote of thanks.
