Bankruptcy Code Research Articles

Pre-Packaged Insolvency Resolution Process (Why Slow Progress?)

The Indian Government has introduced a significant economic and legislative reform known as the Pre-Packaged Insolvency Resolution Process (PPIRP) to bolster corporate MSMEs, which plays a vital role in the Indian economy. This particular process offers a comprehensive framework for the revival and resolution of MSMEs, yet unfortunately, its significance has not been widely recognized. Consequently, the implementation of this process has faced challenges in its current phase. Micro, small, and medium enterprises (MSME) are governed by the MSMED Act. Sections 15 to 23 of the Act outline a specialized mechanism for resolving disputes and enforcing specific business and contractual terms. The Amendment Ordinance of 2021 to the Insolvency and Bankruptcy Code introduced the novel concept of "Pre-Packaged Insolvency Resolution Process" within the framework of the Insolvency and Bankruptcy Code of 2016. The primary aim of PPIRP is to offer an alternative resolution mechanism for MSMEs, ensuring expeditious, cost-effective, and value-optimizing results for all stakeholders. Nevertheless, the utilization of the PPIRP procedure is hindered by inadequate dissemination and comprehension within the industry in comparison to the Corporate Insolvency Resolution Process (CIRP).

Study on Voluntary Winding Up Under the Insolvency and Bankruptcy Code, 2016

Study on Voluntary Winding Up Under the Insolvency and Bankruptcy Code, 2016

Creditor Driven Insolvency Resolution Law – A Review of Intent v/s Practice.

Purpose- This paper aims to examine the effectiveness of Insolvency Law in India in addressing cases of corporate distress and enabling them to revive the business through restructuring by passing appropriate resolution as envisaged by the Law. It aims to seek evidence as to whether the ‘creditor driven insolvency resolution’ model has a propensity towards ‘resolution’ or is it driven more towards ‘liquidation’ leading to ‘value erosion.’ Design/Methodology/Approach- The paper is descriptive in nature. The paper studies the practice and impact of the Insolvency and Bankruptcy Code in India. The data reported by Insolvency and Bankruptcy Board of India have been used to examine the Insolvency law in practice. Findings- The author argues that Indian Insolvency Law tends to lean towards ‘Liquidation’ of distressed entity rather than ‘Reorganization’ of the entity against legal wisdom behind insolvency laws to promote revival of the distressed entity. The authors also imprint that increasing instances of withdrawal of admitted cases from IBC is an indicator of distressed entities resorting to informal methods of resolving cases outside IBC. Originality/Value- The paper puts across the dichotomy between ‘intention’ and ‘impact’ of Insolvency law in India. The study highlights deviation of insolvency resolution framework in India from the ‘Evolutionary Theory’ which states that increased dispersion of corporate ownership would lead to increased affinity towards ‘manager driven insolvency regime.’ Practical Implications-This study would be useful to insolvency resolution regulators, insolvency professionals and government to examine the insolvency law framework to improve effectiveness of Insolvency and Bankruptcy Code in practice.

The Knight in Shining Armour: JSW Steel Ltd’s Acquisition of Bhushan Power and Steel Ltd

This case revolves around the acquisition of Bhushan Power and Steel Ltd (BPSL) by JSW Steel Ltd BPSL faced severe financial difficulties, prompting its lenders, including prominent Indian banks, to initiate insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code in 2019. JSW Steel Ltd entered the competition to acquire BPSL’s assets and secured the bid. However, complications arose as the Enforcement Directorate and BPSL’s promoters raised objections, leading to delays in the insolvency process. The case spotlights a significant Indian corporate reform represented by the Insolvency and Bankruptcy Code and the establishment of the National Company Law Appellate Tribunal (NCLAT). This reform proved essential as it provided an alternative to distressed companies, which previously had no choice but to cease operations, adversely affecting both employees and lenders. The NCLAT has since introduced a win-win solution for most stakeholders. Furthermore, the case delves into the crucial characteristics of the steel industry, an indispensable product utilized across various global industries, and how these features significantly impact strategic decision-making. It underscores the strategic value of JSW Steel Ltd’s acquisition of a struggling company. In summary, it offers a comprehensive perspective on the insolvency process, the roles of the NCLAT and Enforcement Directorate, and the value generated through the acquisition.

Insolvency and Intellectual Property Rights Protection and Enforcement Issues in Bankruptcy Proceedings

This research paper explores the intricate relationship between intellectual property (“IP”) rights and insolvency proceedings, particularly within the framework of the Insolvency and Bankruptcy Code (“IBC”) in India. Intellectual property assets, including trademarks, patents, copyrights, and other intangible assets, hold significant value for companies, often becoming pivotal factors in insolvency resolution outcomes. Despite the critical role of IP, the IBC lacks explicit provisions addressing the treatment of IP licenses during insolvency, leading to uncertainties and gaps in legal guidance. Through a comprehensive examination of relevant sections of the IBC, such as Section 18 and Section 29, alongside comparative analysis with international insolvency laws, this paper elucidates the complexities surrounding the treatment of IP licenses in insolvency scenarios. It delves into concepts like the disclaimer of onerous property, avoidance powers, and the role of resolution professionals in managing IP assets during insolvency resolution processes. Furthermore, this paper identifies the absence of clear guidelines for cross-border insolvency cases involving intellectual property licenses, highlighting the need for harmonization and regulatory clarity to address potential conflicts between different insolvency regimes. The research underscores the importance of administrative inquiry and legislative action to provide robust protection for IP rights within insolvency frameworks, ensuring equitable treatment for all stakeholders involved. Keywords: Intellectual Property, Insolvency, Insolvency and Bankruptcy Code, IP Licenses, Cross-border Insolvency

The Impact of Insolvency and Bankruptcy Code 2016: A Comprehensive Study

Insolvency and bankruptcy have emerged as significant concerns in the global economy, impacting firms, economies, and individuals alike. Economic volatility, high corporate debt levels, industry disruptions, and inadequate financial management contribute to the escalation of insolvency risks. The COVID-19 epidemic has made these difficulties worse., leading to a surge in bankruptcy filings worldwide. In response to the need for efficient resolution mechanisms, India introduced Insolvency and Bankruptcy Code, 2016 (IBC), introduced for streamlining insolvency proceedings and protecting stakeholders' interests. While the IBC has achieved notable successes in resolving cases, challenges still must be addressed, including declining recovery rates and prolonged resolution times.

Ratio Legis of Bankruptcy and Suspension of Debt Payment Obligations to Fulfil Creditors' Rights

Law No. 37 of 2004 concerning Bankruptcy and PKPU was established to address the debtor's obligations amidst financial incapacity. However, Law No. 37 of 2004 is invoked as the underlying basis by corporations seeking to absolve themselves from debt obligations. The objective is to understand corporate rescue, the principles of commercial exit from financial distress, and their connection to the fulfilment of creditor rights in the PKPU or Bankruptcy processes under Law No. 37 of 2004. The research methodology is empirical juridical, with the primary data as the main source, supplemented by secondary data through observations and interviews, with qualitative analysis and inductive conclusions. The research findings indicate that the simplified evidentiary outlined in Law No. 37 of 2004 is inappropriately invoked as the legal basis for Debtors is financially solvable and viable. Consequently, this leads to creditors losing. Moreover, Law No. 37 of 2004 is considered irrelevant; the emphasis should shift towards the concept of corporate rescue as a principle for business continuity. This approach aligns with practices in developed countries within the EU, as outlined in Chapter 11 of the United States Bankruptcy Code, to be used as a parameter to revise Law No. 37 of 2004.

Does bankruptcy law affect the relation between leverage and firm performance?

PurposeThe purpose of this paper is to examine the impact of bankruptcy reform in the year 2016 on the relation between leverage and firm performance for Indian firms, separately for business group and standalone firms.Design/methodology/approachFixed effects panel regression is used to understand the role of bankruptcy reform on firm-level data to examine the relationship between leverage and firm performance after controlling for size, growth, age, liquidity and promoter shareholding. The authors also apply the generalized method of moments (GMM) to control for the endogeneity concerns.FindingsThe authors show that the introduction of the insolvency and bankruptcy code (IBC) positively moderates the relation between leverage and firm performance such that the extent of negative relation between leverage and firm performance is less in the post-IBC period. The positive impact of IBC on the relation between leverage and firm performance holds only for firms not affiliated to business groups and for firms with higher debt in their capital structure.Practical implicationsThe study’s findings will help the regulators appreciate the effectiveness of bankruptcy reforms resulting from IBC implementation in terms of sound bankruptcy process and leading to safeguard the interests of minority shareholders.Originality/valueThe authors provide the only study to examine the role of bankruptcy law in moderating the relation between leverage and firm performance across a sample of business group and standalone firms.

Loopholes in the Indian Banking System concerning Non-Performing Assets (NPAs) – A Case Study of “Axis Bank and HDFC Bank”

Abstract -The paper presents a comparative case analysis of two leading banks, Axis Bank and HDFC Bank. The rising tide of Non-Performing Assets (NPAs) in the banking sector is a major threat to financial stability and economic progress. The case study uncovered severe deficiencies in risk management, credit evaluation, and regulatory compliance, which have resulted in a considerable accumulation of Non-Performing Assets. The banks' exposure to economically sensitive sectors amplifies the impact of downturns on asset quality. The limitations in credit risk assessment underline the necessity for increased due diligence. Regulatory frameworks, such as the Insolvency and Bankruptcy Code, and prompt corrective action have a significant impact on NPA responses. The findings highlight the complicated interplay between internal banking practices, regulatory frameworks, and economic conditions that affect a bank's financial performance. Addressing discovered weaknesses inside both these banks is important to the stability of India's financial system. The implications, as indicated by rising NPAs, are felt throughout the sector, jeopardizing overall resilience. Addressing these problems is crucial for reducing systemic risks, preventing a credit crisis, and rebuilding trust in the financial industry. A better banking system is critical for India's financial stability, economic growth, and stakeholder trust. As major private sector players, Axis Bank and HDFC Bank’s successful remediation set a precedent, emphasizing the need for excellent risk management, regulatory compliance, and strategic adaptation. Key Words: Axis Bank, HDFC Bank, Non-Performing Assets, Risk Management, Regulatory Compliance, Financial Stability, Economic Impact

ArcelorMittal Steel’s Essar Acquisition: A Long Legal Battle with Ramifications

Essar Steel India Limited (ESIL) participated in an auction under the new Indian Insolvency and Bankruptcy Code (IBC) of 2016 to recover outstanding dues totalling ₹545,470 million owed to financial lenders and operational creditors. The acquisition process, initiated in August 2017, concluded in December 2019, with ArcelorMittal paying ₹420,000 million. This marked the resolution of a prolonged two-year legal dispute. Essar’s case served as a significant milestone in the implementation of the IBC 2016, establishing legal precedents such as the non-interference principle regarding commercial decisions made by the Committee of Creditors by the National Company Law Tribunal. The National Company Law Appellate Tribunal and the introduction of Section 29A were additional developments. The case aims to assess the motivations behind ArcelorMittal’s acquisition of ESIL, evaluate the appropriateness of ArcelorMittal’s approach and examine the impact of the protracted legal battle spanning two years on the deal.

A principled examination of US bankruptcy law and the accounting for value in conversions between chapters 7 and 13

AbstractThis article focuses on the apportionment and distribution of post‐filing pre‐conversion increases in equity of assets in a debtor’s estate when a debtor converts from a Chapter 13 to a Chapter 7 bankruptcy proceeding. Through an examination of the history of the US Bankruptcy Code and adequate examination of differing approaches, this article argues that courts should adopt the position that the post‐filing increase in equity due to appreciation should inure to the estate rather than to the debtor, while the increases in equity through payback plans should inure to the debtor. This approach creates the fairest situation for a debtor, placing them in a situation where they receive the full benefits of the Chapter 13 bankruptcy proposition and provides sufficient economic benefits to creditors.

DEVELOPING MARKETS FOR STRESSED ASSETS: A COMPREHENSIVE ANALYSIS IN THE CONTEXT OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016

The Insolvency and Bankruptcy Code, 2016 (IBC) stands as a transformative legal framework in the Indian financial landscape, revolutionising the resolution of distressed assets. This article delves into the multifaceted dimensions of stressed assets within the ambit of the IBC, offering a comprehensive analysis of its significance, challenges, and opportunities. Beginning with an elucidation of stressed asset categories and their emergence factors, the discourse traverses through the historical evolution of the problem, shedding light on regulatory responses. Through a meticulous examination, the article uncovers the intricacies of legal and operational hurdles confronting the development of stressed asset markets juxtaposed with promising prospects for investors and creditors. Furthermore, it underscores the pivotal role of governmental interventions in mitigating challenges and fostering a conducive environment for effective asset resolution. With insights drawn from legal expertise and empirical observations, this article serves as a valuable resource for stakeholders navigating the dynamic terrain of distressed asset management under the IBC, ultimately contributing to a robust financial ecosystem in India.

Extent of Discretionary Power of NCLT under Section 7 of Insolvency and Bankruptcy Code

The research paper at hand aims at identifying critical aspects around the so said "discretion" given to the NCLT with respect to admission of application for Corporate Insolvency Resolution Proceeding (CIRP) by a financial creditor. The law in this aspect is quit unresolved at the moment and requires the involvement of the legislature or the judiciary to give out the answer with this regard. Additionally, the difference between an operational creditor and a financial creditor is also analysed in this paper.

Strengthening operational creditor rights and trade credit: Evidence from creditor reforms

Trade creditors are exposed to credit risk when they extend credit to their clients during the sale of goods. The present study exploits a regulatory intervention that enhances the rights of trade creditors in cases of default. By leveraging the implementation of the Insolvency and Bankruptcy Code (IBC) in 2016 as a policy intervention, we employ the difference-in-differences (DID) approach to demonstrate that the strengthening of trade creditor rights leads to a rise in the usage of trade credit to financially vulnerable firms. Additionally, our study indicates that financially vulnerable firms experiencing information asymmetry exhibit a more pronounced increase in trade credit. Overall, the paper shows that strong legal protections for trade creditors are essential to trade credit.

The Plight of Homebuyers and the Real-Estate Industry in India Under the Insolvency and Bankruptcy Code, 2016

The Plight of Homebuyers and the Real-Estate Industry in India Under the Insolvency and Bankruptcy Code, 2016

LA NUOVA CONFORMAZIONE DEGLI ASSETTI ORGANIZZATIVI PER LE SQUADRE DI CALCIO PROFESSIONISTICHE. UNA SFIDA PER LA CREAZIONE DI UNA CORPORATE GOVERNANCE IN GRADO DI RISPETTARE I NUOVI PARAMETRI FINANZIARI DEL FINANCIAL SUSTAINABILITY REGULATIONS

The paper examines the sports legal profile, accounting and corporate issues of football teams and the innovations introduced by the New Bankruptcy Code (Codice della Crisi) in the area of organizational and administrative structures, with the aim of identifying the characteristics of the business management that a professional football team must have in order to comply with the economic-financial rules introduced by national and EU sports legislation, as well as those required by the new article 2086 of the ICC.

Section 363 Sales and Their Blind Faith in the Markets

Airlines tend to go bankrupt. In fact, all the so-called legacy carriers have gone bankrupt at one time or another. What leads these airlines into financial distress varies from case to case. Sometimes they are overrun by costs, and other times they lack sufficient demand. The concern of this paper, though, is not why airlines file bankruptcy—it is assumed that, from time to time, airlines will face financial distress and will require the protection of the U.S. Bankruptcy Code (the Code). Instead, this paper will examine how large firms such as airlines are navigating bankruptcies today. After providing some overview of the current landscape of large Chapter 11 cases—specifically in the realm of § 363 asset sales and the debates surrounding these sales—this paper will argue that the theories supporting the continued use of these sales are suspect and should be met with skepticism by the courts and by policymakers, and, additionally, that these sales often undermine the policy objectives of the Code in general. Finally, this paper will look at how these debates are shaping future bankruptcy policy and will argue in favor of proposed legislation from Senator Manchin of West Virginia amending § 363 of the Code.

Addressing Home Buyer's Concerns under the Insolvency and Bankruptcy Code, 2016

Addressing Home Buyer's Concerns under the Insolvency and Bankruptcy Code, 2016

Indian Bankruptcy Code and High Haircuts Unclogged the Way for Companies to Loot Public Money

Indian Bankruptcy Code and High Haircuts Unclogged the Way for Companies to Loot Public Money

Does Insolvency and Bankruptcy Code address the Credit Misallocation concern? Indian Experience

Does Insolvency and Bankruptcy Code address the Credit Misallocation concern? Indian Experience