The Introduction of IBC was as unprecedented and as drastic as the demonetization scheme. It was drastic, it swept people of their feet and made them spring into action. However, unlike, demonetization, the Insolvency and Bankruptcy Code of 2016 is still going through some changes. For now, it is seen as a way for the banks to get back the money from the companies that owe them. However, with time, its short term goal has taken hold and it is now seen as a debt recovering measure. It is seen as a short term goal of this act, as for the long term goals, it has shifted the way that the government’s approach towards capitalism and business. Before, this relationship was cost where there were immense taxes levied on the companies and at the same time, such companies were afforded a fair amount of failure. Well, this has changed now, and failure more or less intolerable. Basically, he IBC has provided a way for the foreign companies to exit as well.
The Before And After
- Before was the age of Protected Restriction: Let us first talk about the heave taxes that were imposed on the companies. Many times, those seemed downright unfair. This deal causes only a handful of companies to be present in India. As for the protection of business, the entire loan structure of the banks was restructured to ensure that the companies always have a way out; they always have a way to not go bankrupt. This corporate inclination worked towards the detriment of Indian economy as foreign investors were way too apprehensive from even considering Indian companies as the beneficiaries of their investments.
- Now is the age of Liberalized performance: Insolvency and Bankruptcy Code did two measure changes. First, it ensured that all the fragments of the acts that made insolvency resolution of companies difficult are collected in a single regulatory body. Second, they introduced insolvency resolution process and gave it a restriction of time. This came with the backdrop of policies that provided a lot of freedom to the companies so that they are able have a chance to grow. With the introduction of IBC, the companies now have to perform, or their creditors or investors can drag them to insolvency resolution process. The fear of this process has aided many foreign companies to invest and exit with freedom.
However, All Is Not Well In This Age
The code might have freed the companies from things that have restricted them from growth; it has also begun to pressure them for performance. Regardless of foreign interests is being taken care for through this act; there have been sudden subtle sounds of discontent because of the following reasons:
- Liquidation of a company leads to liquidation of many employees as well: This might be a bit melodramatic thing to say. However, it is true nonetheless. With the result of most insolvency resolution proceedings being liquidation, the welfare of the employees of the debtor company is something that is ignored at most times. There have been many cases of the employees being laid off. This factors volumes towards the overtly broad mindset of the act that while it takes notice of the company, the attention is lacking when the employees of the company are considered. As a result, the lay-offs are painful and despite the government’s efforts towards decreasing the unemployment rate in the nation, the code seems to be counterproductive.
- The sudden lack of protection is unnerving: While we all can applaud the code to provide more investment venues for the betterment of the nation, one should not ignore that this was all of a sudden. The entire business model of India has grown in a protective fashion. Therefore, companies are used to protection by the banks. Imagine you are out in the cold, and then the government stated that there won’t be any allowed blankets anymore! A wild metaphor for sure, but this is the way the old companies have felt since the introduction of the IBC. In such case, the companies find themselves not fully prepared of the sudden upheaval from the creditors who are swarming with section 9 petitions towards the NCLT.
- In its original form, the code is a bit biased: The code is decisive and so that the rights that it gives to the financial creditors, granting them to form a (CoC), a major voting body of the Insolvency resolution process. However, it has not shown the same care towards the operational creditors (OC). The professionals who conduct the aforementioned resolution process deal with such creditors separately. This factor completely goes against the natural justice. However, the IBBI has now sought to given the OC more rights and probably, a seat at the table with the CoC. That being said, banks (the financial creditors) have voiced against it.
The IBC code has brought a sudden change in the Indian economy. This change is tantamount to shaking things up in the economical facet of the nation. It has removed the restrictions, gave the businesses a new focus towards competition. However, it has also removed a protective shield from the businesses that protected them bankruptcy, and it is still a bit biased and has a broad vision that does not seem to focus on all the perspectives. While it can be said that all of this can be chalked up to the Code being still a virgin, it needs to be broken in and analyzed still so that everyone is able to see its benefits in a better light.