Bankruptcy code
News:
- The new Insolvency and Bankruptcy Code (IBC) witnessed a major success when Tata Steel acquired 73% stake in the bankrupt firm Bhushan Steel.
Important facts:
- The proceeds from the acquisition will go towards settling almost two-thirds of the total outstanding liabilities that Bhushan Steel owes banks.
- In future, if banks recover funds of such considerable scale, then:
- It would considerably reduce the burden on taxpayers and
- It would free valuable assets to be used for wealth-creation.
- The challenges which remains for the bankruptcy resolution process are:
- The proposed eligibility criteria for bidders,
- Restriction of capacity in helping out creditors efficiently, and
- Strict time limit for the resolution process.
- The possible measures to be taken are:
- A robust market for stressed assets that is free from all kinds of entry barriers is requird,
- Recommendation of the Insolvency Law Committee for a relaxed bidder eligibility criteria should be implemented, and
- Amendments to the bankruptcy code should primarily be driven by the goal of maximising the sale price of stressed assets.