Stakeholders of bankrupt firms should not be guided by individual gains: CEA
Invoking the concept of ‘dharma’ or the right course of action, Subramanian suggested that decisions taken with the overall good in mind could improve the outcome of IBC
New Delhi: Stakeholders of bankrupt businesses should take decisions going by what is optimal for the entire bankruptcy resolution ecosystem rather than what is good for them individually, chief economic advisor Krishnamurthy Subramanian said on Friday.
Speaking at a conference on ‘five years of Insolvency and Bankruptcy Code (IBC) and the way forward,’ Subramanian said that the results of IBC or any other system can be caught in an inefficient equilibrium when individual stakeholders take decisions based on what is optimal for them rather than what is the optimal result for the society.
Invoking the concept of ‘dharma’ or the right course of action, Subramanian suggested that decisions taken with the overall good in mind could improve the outcome of IBC, one of the most important reforms by the Narendra Modi administration in its previous term in office.
Subramanian’s comments about collective good as a guiding principle for decision making relating to bankrupt businesses comes in the context of the high degree of haircuts taken by lenders in the case of some of the bankrupt firms.
The Parliamentary Standing Committee on Finance led by BJP leader Jayant Sinha, earlier this month, expressed concerns over this trend and suggested a code of conduct for the panel of lenders who control the affairs of a company going through bankruptcy proceedings.
Justice (Rtd) MM Kumar, former Chief Justice of J&K High Court, member of National Human Rights Commission and former president of National Company Law Tribunal (NCLT), who also spoke at the conference organised by the Confederation of Indian Industry (CII), said that professionalism was lacking at the levels of insolvency professionals, lenders and in other areas.
There has to be some re-thinking on how we can revitalise those areas and instil professionalism, said Justice Kumar. “I think that pre-pack scheme (an informal bankruptcy resolution system offered to small businesses) may have to be universalized," he said. The industry too has been asking for expanding the scope of this scheme for larger businesses.
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