Debts come due
One of the most dramatic changes this year has been the sight of powerful business groups rushing to settle their dues with lenders. The new bankruptcy code that came into force last year has clearly shifted the advantage from borrowers to creditors. The new law was backed in the early months by strong support from the courts as well as the decision by the Reserve Bank of India to force banks to move against the biggest defaulters.
The basics are worth reiterating. The limited liability company is one of the central institutions of modern capitalism. It is a contract between equity and debt. Equity owners are in full control as long as debt obligations are met. Creditors have no say in how the company is run. The situation flips in case of a default. Control should then be passed to creditors. Equity owners have no say.
The bankruptcy code still has teething troubles, but its true impact will be felt in the next credit cycle, especially if the quality of bank lending improves because companies are more careful with leverage.
- PM Narendra Modi launches Barmer refinery in Rajasthan
- Senior MQM leader Hasan Zafar Arif found dead in Karachi
- FBI warned Jared Kushner on Rupert Murdoch’s ex-wife, says report
- Reliance Industries declares 30% higher refinery capacity at Jamnagar plant
- TCS wins over $690 million deal from M&G Prudential