Opinion | The bankruptcy code awaits further clarity
An NCLAT order on debt recovery from Essar Steel had thrown banks into a tizzy over their fair share of resolution proceeds. Thankfully, the government is ready to address the issue
The Union cabinet’s approval of amendments to the Insolvency and Bankruptcy Code (IBC) to enhance its efficacy could bring relief to banks, foreign investors and others worried about the impact that quasi-judicial interpretations of the code’s grey areas might have on the country’s credit systems. Among the expected tweaks is a clarification on the hierarchy of creditors to be repaid once the insolvency of a company gone bust is resolved. Lenders had found their mood darkenin response to a recent National Company Law Appellate Tribunal (NCLAT) ruling in the bankruptcy case of Essar Steel. The tribunal, while approving ArcelorMittal’s bid to take over the company for ₹42,000 crore, had ordered that all its creditors be returned 60.7% of their respective outstanding claims, irrespective of whether the money they were owed was “secured" or not. That all creditors be treated on par for debt recovery might appear fair at first glance, but if such an “equal haircut" principle were to set a precedent for future cases, it would distort a credit market that operates on the logic of loan deals that vary both by interest charges levied and the contractual consequences of a default.
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