Financial Creditors Research Articles

Empowering NCLAT: The Review Revolution

NCLT is an established quasi-judicial body responsible for resolving civil corporate disputes brought about by the Companies Act. It was established under the Companies Act of 2013, and it has a number of powers and functions, including approving various schemes of arrangement and reconstruction, compounding offenses under the Companies Act, protecting shareholders, removing directors, and other powers and functions as provided for under the Companies Act of 2013 and other applicable laws. Its jurisdiction incorporates different company law issues as well as Insolvency and Bankruptcy Code (IBC) Cases. Class action lawsuits may be considered by it, and decisions made by it may be challenged before the National Company Law Appellate Tribunal (NCLAT) and, in certain situations, before the Supreme Court of India. Recalling a judgment often entails nullifying or reversing a court's ruling, frequently due to erroneous factual or procedural interpretations. It is a prerogative that the Tribunal naturally possesses, as stated under Rule 11. This chapter deals with the recent overriding judgment (Union Bank of India (Erstwhile Corporation Bank) vs. Dinkar T. Venkatasubramanian & Ors [(2023) ibclaw. in 381 NCLAT]) of the NCLAT’s reviewing power by referring to the previous judgment of Union Bank of India V. Financial Creditors of M/s. Amtek Auto Ltd. & Ors encourage readers to read the current judgment's contrast section, which asks, what would happen if NCLAT had the authority to review its decision?

The Dairy Meltdown

The case highlights the bankruptcy case of Kwality Limited, a significant Indian dairy company. Haldiram Snacks submitted a final bid of ₹1.45 billion to the Committee of Creditors for Kwality Limited, which is currently undergoing bankruptcy proceedings LiveMint (2019). This bid, a slight increase from their earlier rejected bid of ₹1.42 billion, has raised concerns due to its inadequate coverage of the company’s substantial outstanding debt of ₹19 billion Despite extensions, Haldiram Snacks remains the sole bidder, presenting a resolution plan under the Indian Insolvency and Bankruptcy Code (2016). The bankruptcy process was initiated in 2018 by financial creditors KKR India Financial and Punjab National Bank. The bid’s insufficiency, covering less than 10% of the debt, prompts reflections on overlooked warning signs and preventive strategies for the future. The larger context of the Indian dairy industry is provided, highlighting significant production and consumption figures, the growing organized dairy sector and the demand for value-added products. Kwality’s growth and expanding farmer network are briefly touched upon. The case overviews Kwality Limited’s bankruptcy, Haldiram Snacks’ bid, the company’s history and performance, and the broader Indian dairy industry landscape. It underlines the bid’s shortfall in comparison to the outstanding debt and raises pertinent questions about the company’s downfall and preventive measures moving forward.

RIGHTS OF HOME-BUYERS AS FINANCIAL CREDITORS UNDER THE INSOLVENCY & BANKRUPTCY CODE

Real estate sector of India is a booming sector, and has a very much influence in Indian Economy. For quite a long-time homebuyers/allottees faced hardships for sorting their remedial rights against the default’s actions of the Real estate companies which changed drastically after the evolution and amendments made in The Real Estate (Regulation & Development) Act, 2016 (RERA) and Insolvency and Bankruptcy Act, 2016 (IBC) placing them onto the pedestal of Financial Creditors status which only further strengthen the same. IBC main role is to avert insolvency by revitalizing poorly businesses however, not a retrieval instrument for creditors but a resolution apparatus to blow natural life into strained monies of the CD. The new Reverse Corporate Insolvency Resolution Process (CIRP) concept by National Company Appellate Law Tribunal (NCLAT). However, have fewer-to-one practical implications but such out-of-the-box thinking was direly needed.

POSITION OF OPERATIONAL CREDITORS: IN REGARD TO CIRP AND LIQUIDATION

The Insolvency and Bankruptcy Code, 2016 became effective in May 2016 after receiving final presidential approval. The IBC is a complete code that acts as the focal point for all insolvency procedures. It was created to address the concerns about subpar loans that the Indian banking industry had. Previously, there was a lot of pending litigation regarding insolvency proceedings because of the protracted, years-long legislative process. But after the IBC was put into operation in 2016, the procedure has significantly improved in terms of both investor friendliness and cost-effectiveness. The regulation attempts to safeguard the interests of small investors by enabling recovery. The company must complete the insolvency procedure within 180 days of the process’s beginning, and recovery proceedings under the IBC may be initiated by either the debtor or the creditor. Financial creditors and operational creditors are two separate types of creditors recognized by the IBC. Most of the company’s creditors are simply under contractual or financial obligations to it, such as via loans or debt security. Among the operational creditors are the government, contractors, and employees. By designating them as Operational Creditors under IBC, the Insolvency and Bankruptcy Code, 2016, has worked to strengthen and advance the position of the Company’s suppliers and service providers since its establishment. But unhappily, over time and as a consequence of multiple judgments, operational creditors’ positions have become worse, especially in terms of their chances of receiving payment via the Corporate Insolvency Resolution Process. Several court decisions, committee recommendations, and legislative changes have all addressed the issue of giving operational creditors the same status as financial creditors. In this study, we will carefully examine the situations of operational creditors. The first part of the article will discuss who qualifies as an operational creditor. In the second segment, we’ll look at how operational creditors are affected by CIRP and liquidation. Thirdly, it will address various situations pertaining to the debate over whether operational creditors should be treated equally to financial creditors. Lastly, the paper figures out how operational creditors are treated under the IBC.

Can Operational Creditors Have the Same Shares as Financial Creditors?

Can Operational Creditors Have the Same Shares as Financial Creditors?

Revival of jet airways – will it emerge as a phoenix?

Learning outcomes The case intends for students to delve into aspects related to changes in the business environment, dynamics of competition in the airline industry, factors responsible for the collapse of an airline that had once remained a highflyer, and aspects related to change management in reviving a business that has undergone a trauma of crisis. Case overview/synopsis Jet Airways was all set to fly by the July-September quarter of 2022. The protagonist, Sanjiv Kapoor, had recently joined as the CEO of Jet Airways. Jet Airways was founded in 1993 when the Indian Government decided to liberalize the Indian skies. Flying highs and lows in its journey of 25 years, Jet Airways got grounded on 17 April 2019 because of a lack of funds. There were unsettled claims of ₹370bn against financial creditors and employees. Though liquidation of assets would have been a route to settle claims, it was decided to sell assets of the defunct airline by means of a formal resolution process. On 17 October 2020, the Committee of Creditors (CoC) approved the resolution plan of the consortium of Jalan and Kalrock Capital, which were the new promoters of the airline and were working to bring Jet Airways to its glory. These promoters appointed Kapoor to share the responsibility of Jet 2.0. Kapoor had to lead the change at Jet 2.0. Kapoor examined the idea of “look forward and reason back” as multiple challenges existed amongst opportunities for the carrier in its second chance at life. The case documented the entire saga of the rise, fall and revival of Jet Airways. Complexity academic level Undergraduate and Post Graduate Students Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

Validity Analysis of Financial Failure Prediction Models During the Covid-19 Pandemic

Unexpected bankruptcies of companies cause significant damage to company partners, investors, employees, countries, commercial and financial creditors. In this context, the financial failure risks should be constantly measured and controlled. However, it is important to constantly check the validity of financial models that measure the risk of the financial failure of companies. Because the higher the validity rates of these models, the higher the probability of investors and researchers to make the right decision according to the results obtained from these models. In this context, validity tests widely used in the literature, namely Altman (1968), Springate (1978), Ohlson (1980), Fulmer (1984), Zmijewski (1984), Canada (1987) and Grove (2001) models, were applied in this study. The study sample comprises of 8 energy companies in the US markets, which were officially declared bankrupt between 2018 and 2020. The universe of the study includes all companies and excludes financial institutions, financial companies and insurance companies. The research results have shown that Springate and Altman models best predict the financial failure risk of companies. However, Canadian and Fulmer models are the second group of models with the highest performance. The overall accuracy rate of the Grover model is also slightly above the overall average, while the overall accuracy rate of the Zmijewski and Ohlson models is below the general average.

Die außergerichtliche Sanierungstreuhand

The restructuring trust is an effective tool to accompany the restruction of companies in crisis. A corridor must be maintained through the law on equity capital and insolvency law so that the financial creditors can take full advantage of the restructuring trust. The core element is the trust agreement.

Zombie Firms, Corporate Restructuring and Relationship Banking: Credit Guidance as a Key to Tackle Zombie Lending?

Abstract Economists have examined the rise of so-called zombie firms in recent years. Such firms remain in financial distress for a prolonged period while financial creditors keep them alive through continued lending. Based on signaling theory, we investigate zombie firms in the context of corporate restructuring and relationship banking. Combining a theoretical approach with a multiple case study on German medium-sized firms facing private workouts, we derive the following main propositions: (i) Banks face information asymmetry and may have incentives for loan extension (i.e., rescheduled installments and additional collateral) when deciding about restructuring financing. In the case of financing unviable restructuring strategies, this can lead to the emergence of zombie firms. (ii) For this reason and in contrast to recent research, not only weakly capitalized but also healthy banks may face such incentives and might end up in financing zombie firms. (iii) Relationship banking reduces bank information asymmetry. Thus, it may enable banks to detect clients’ distress situations in the early stages and to support resolving them. Hence, guiding and inspecting banks (i.e., credit guidance) to carry out supportive relationship banking might be a key to preventing the emergence of zombie firms. The propositions bear several implications relevant to academic research, bank management and banking regulation.

Financial Creditor, Operational Creditor and An Overview on Home-Buyers under Indian Bankruptcy Code

The terms insolvency and bankruptcy are used with reference to the financial position of a person and a corporation or a company. The term Insolvency is a state whereas Bankruptcy is the effect of that act. In legal terms, insolvency is a state where the liabilities of an individual or an organization exceeds its asset and that entity is unable to raise enough cash to meet its obligations or debts as they become due for payment. When an individual is unable to pay off his liabilities and debts then he generally files for bankruptcy. Here he asks for help from the government to pay off his debts to his creditors. This paper analysis the basics of Financial Creditors, Operational Creditors, Jurisdiction and Scope of Home-buyers under Indian Bankruptcy Code.

MANUFACTURING FIRMS’ CAPITAL STRUCTURE IN BANGLADESH: COMPARISON BETWEEN LISTED MNCS AND LOCAL COMPANIES

The capital structure of a firm has immense significance as it has implications on corporate value and financial performance. The basic aim of the research was to analyze and compare the capital structure of Dhaka Stock Exchange (DSE)-listed multi-national companies (MNCs) and local companies of Bangladesh over 24 years (1996-2019). Stratified sampling techniques were applied to the selection of firms. Six financial leverage ratios were used to analyze and compare capital structures. There were significant differences in capital structure between local companies and MNCs as the null hypothesis was rejected. It was also found that the mean equity-financing proportion of domestic companies and MNCs were 65% and 92.5% respectively. The proportion of long term debt in total capital employed was very low for both types of companies. MNCs can raise the proportion of both short and long-term debt to take the advantage of financial leverage. Domestic companies can redeem some short term loan and replace some short term debt with long term debt. This research would be useful for corporate financial managers, creditors, and investors to take appropriate financing as well as investment decisions which would affect shareholders' wealth and value of the firm in the long run to a significant extent.
 JEL Classification Codes: G30, G32, G39

Treating Homebuyers Within The Ambit Of ‘Financial Creditors’ Under Insolvency Bankruptcy Code, 2016 And Critical View On The Recent Amendments

Treating Homebuyers Within The Ambit Of ‘Financial Creditors’ Under Insolvency Bankruptcy Code, 2016 And Critical View On The Recent Amendments

Insolvency in Real Estate: A Difficult Balancing Act

In 2016, India enacted the Insolvency and Bankruptcy Code (IBC), a landmark legislation which reconceptualized the existing insolvency and bankruptcy regime in India. The IBC sought to overhaul an inefficient bankruptcy framework by introducing a creditor-in-control regime, a time-bound resolution process and reduced scope for judicial intervention. The IBC created two classes of creditor, financial and operational, with the former empowered to play a significantly greater role in the insolvency resolution process. One of the significant challenges faced under the new legal regime were insolvencies of real estate companies with a large number of pre-paying purchasers of residential apartments, who as a consequence of the IBC’s creditor classification, were excluded from the decision-making process in determining the outcome of these insolvencies. The legislative and judicial responses to address the concerns of such purchasers significantly evolved the IBC’s original framework. This evolution, particularly the legislative amendments to deem homebuyers as financial creditors, and judicial reluctance to allow liquidation of real estate companies, altered the resolution process and economic logic originally envisaged by the IBC. As a consequence, difficulties have arisen, and are further foreseen, in the resolution of real estate companies with a significant homebuyer presence.

The impact of debt management on corporate earnings: Indebtedness and its effects on the financial performance of selected Visegrad group enterprises

Research background: One of the significant problems of corporate financial management in the international context is the appropriate determination of the total amount of capital as well as the correct composition of financial sources to finance the activities of enterprises. The determination of the optimal capital structure, and thus the minimization of the costs of capital have been of interest to authors worldwide for several decades, as they can significantly influence the level of corporate earnings. Purpose of the article: The main aim of the paper is to find a mathematical formula to determine whether the indebtedness of an enterprise is related to any financial problems or does not affect the financial performance of an enterprise and thus contributes to the profitability, i.e. if the debt management is performed efficiently. Methods: To find the mathematical formula, we used the financial data of enterprises operating in the selected Visegrad group and calculated the financial ratios of indebtedness, which were further used in the multiple discriminant analysis. The final discriminant function and calculated centroids allow dividing the enterprises into two different groups, with and without financial problems. Findings & Value added: The results of this analysis can be used in the international context to determine the appropriate level of indebtedness also in other countries, not only in the Visegrad group, which may be helpful for corporate financial managers or creditors, because optimal indebtedness helps generate revenues.

חייבים תמיד נשארים חייבים: מבט אמפירי על הליכי חדלות פירעון של יחידים <br>Debtors Always Remain Debtors: An Empirical View of Individual Insolvency Proceedings

תקציר בעברית: תחום חדלות הפירעון מושך עניין רב בקרב חוקרים, רגולטורים, ואנשי פרקטיקה מתחומי המשפט, הכלכלה, המימון וראיית החשבון. עם זאת, מעטים הם המחקרים האמפיריים שבחנו את התנהלות הליכי חדלות הפירעון ופשיטת הרגל ואת תוצאותיהם. הליך חדלות פירעון מתנהל כאשר חייב נקלע למצב בו אינו יכול לפרוע את חובותיו במלואם. במסגרת ההליך נבחנים כלל נכסיו של החייב אל מול חובותיו ותוך התחשבות בסדרי נשייה נקבעת חלוקת הנכסים בין הנושים, ובהתאם ליכולתו הכלכלית, בניכוי הוצאותיו, נקבע לחייב צו תשלומים חודשי אותו יהיה עליו לשלם. מחקר זה עוסק בבחינה אמפירית של מדגם ייחודי ומייצג של תיקי חדלות פירעון של יחידים, הבוחן לראשונה את סכום צו התשלומים החודשי לקופת הנושים ומתמקד במאפייני התיק המשפיעים על גובה הפער בין צו התשלומים הנקבע על ידי בית המשפט לבין יכולתו של החייב לשלם צו זה, יכולת המבוטאת בפער בין הכנסותיו להוצאותיו. תוצאות המחקר מראות כי בממוצע צו התשלומים גבוה מיכולתו של החייב לשלם צו זה. בנוסף נמצא כי ככל שלחייב יש חובות למספר רב יותר של נושים פיננסיים, וללא תלות בגובה החוב כלפי נושים אלו, כך הפער בין צו התשלומים ליכולתו של החייב לשלם, גדל. English Abstract: The subject of insolvency attracts much interest among researchers, regulators, and practitioners from the fields of law, economics, finance, and accounting. However, only few empirical studies have examined the conduct and results of individual insolvency and bankruptcy proceedings. An insolvency proceeding is conducted when a debtor finds himself in a situation where he is unable to repay his debts in full. As part of the procedure, the debtor’s assets are examined against his debts, and the division of assets between the creditors is determined while taking into account the creditors’ order of priority. Subsequently, according to his financial ability, the debtor is required to pay a monthly payment order. This study employs a unique and representative sample of individual insolvency cases, and, for the first time, examines the sum of the monthly payment order to the creditors. We focus on the characteristics of the case, and in particular, on the effect of the difference between the payment order determined by the court and the debtor’s ability to pay, measured by the gap between his income and his expenses. We show that the payment order is, on average, higher than the debtor's ability to pay. Furthermore, we find that the greater the number of financial creditors to which the debtor owes debts, the greater the gap between the payment order and the debtor's ability to pay, regardless of the size of the debt owed to those creditors.

Guiding principles on human rights impacts assessments of economic policy reforms

ABSTRACT In his report to the UN General Assembly on 28 February 2019, the United Nations Independent Expert on Debt and Human Rights presented Guiding Principles on Human Rights Impact Assessments of Economic Reforms (UN Doc. A/HRC/40/57). These set out the human rights principles and standards that apply to States, international financial institutions and creditors when designing, formulating or proposing economic reforms. Based on the existing human rights obligations and responsibilities of States and other actors, the Guiding Principles underline the importance of systematically assessing the impact of economic reforms on the enjoyment of all human rights before decisions are taken to implement such reforms, as well as during and after their implementation. Economic policymaking must be anchored in and guided by substantive and procedural human rights standards, and human rights impact assessments are a crucial process that enables States and other actors to ensure that economic reforms advance, rather than hinder, the enjoyment of human rights by all.

A Game Theoretic Analysis of the Relative Payouts to Operational Creditors and Financial Creditors from Bankruptcy Resolution in India

Abstract This paper analyses the outcomes of the cases resolved under Insolvency and Bankruptcy Code of India to examine the treatment of admitted claims for the two main classes of creditors i.e. operational and financial creditors. It shows that, at an aggregate level, operational creditors and financial creditors realize an equal percentage of their claims. However, at an individual level, there is wide heterogeneity in the treatment of the two classes of creditors. Three benchmark division rules – Proportional division, Constrained Equal Losses and Constrained Equal Awards, are used to characterize the actual divisions in each case. This analysis allows us to hypothesize that when aggregate claims of operational creditors are tiny, the Constrained Equal Awards (that is extremely generous to small creditors), does well. When aggregate claims of operational creditors are large, the Proportional rule does well. But when the claims of operational creditors fall in an intermediate range, the Constrained Equal Losses rule which is most unfavourable to the operational creditor comes to the fore. Hence, some broad guidelines that can be applied on a case by case basis appear to be desirable.

Forced Contributions to Infructuous Liquidations: Understanding Regulation 2A

The article discusses the position of financial creditors in light of Regulation 2A of the IBBI (Liquidation Process) Regulations, 2016. The main theme of the article is whether the financial creditors of the corporate debtor are obligated to make such contributions.

Apartment Buyers as Financial Creditors: Pushing the Conceptual Limits of the Indian Insolvency Regime

A unique feature of the Indian insolvency regime is itsclassification of debt into “operational” and “financial” debt. InSwiss Ribbons v. Union of India, the Supreme Court of Indiatenaciously upheld the difference between operational andfinancial creditors and declared this classification constitutionallyvalid. Last year, the Insolvency and Bankruptcy Code, 2016 (IBC)was amended to include amounts raised from allottees (persons towhom an apartment or plot in a real estate project has beenallotted) within the definition of “financial debt,” thus makingallottees financial creditors. Though the amendment was passed toempower allottees in India’s real estate sector, it revived a moregeneral discussion on the characteristics of operational andfinancial creditors.This paper posits that the amendment was enacted at thecost of stretching the definition of “financial creditor” beyond itsconceptual limit and interfering with the IBC’s insolvencyresolution mechanism. We use the United States’ and the UnitedKingdom’s insolvency regimes as a point of reference forascertaining the role of creditors in insolvency proceedings andwhether operationalizing the insolvency regime to solve problemsin a particular sector is justified.

Interpretation of Financial Creditor and Operational Creditor

The Insolvency Resolution of India has gone through a structural change due to the economic impact when The Insolvency and Bankruptcy Code 2016 was enacted. The Code provides a procedure for the insolvency resolution within a stipulated time frame. It made it possible for the creditors and debtors to claim the debt and the concerned Authority would decide over the matter within the specified time period. The main object of this code is to save and to ease out the termination of firms from the financial and economic condition. The Economic and Financial subjects are the backbone of the code and the Adjudicating Authority, Appellate Authority and Judiciary have articulated applicable execution of the code and settled the hazy areas to give total lucidity, conviction, and consistency for the stakeholders. Through this paper, I aim to discuss the interpretation of financial creditors and operational creditors in relation to the relevant provisions and some judicial pronouncements which have helped in the legal development under the Insolvency and Bankruptcy Code, 2016.