Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Bankruptcy law in a Deep Mess!
Thu, 26 Nov Pre-Open

If the World Bank is to be believed, it takes about four years to wind up an ailing company in India. That's way above when compared to China, where it doesn't take more than two years to complete this task.

Further, in India, creditors are able to recover just 25.7 cents on the dollar. This ratio is the worst among the emerging economies. The statistics indicate that a strong bankruptcy law is required to end this mess.

The bankruptcy procedures in India are not at all efficient currently. There are large number of conflicting laws in relation to insolvency. The court tries to interpret a number of laws before coming to a conclusion. This leads to delays in decision making. As many as 60,000 bankruptcy cases are pending before the courts today.

There are various flaws in the current system. Let's discuss a few of them...

Some laws prevent creditors from taking any legal actions against the defaulter, unless a restructuring plan is in place. Now just imagine the time it will take to carve a restructuring plan. Realistically, it may take more than a year to restructure an entire company. Till this time, creditors will not be able to take any action against the defaulter.

Further, as per the 'Board of Industrial and Financial Reconstruction', a company can be declared sick only if the accumulated losses equal to or exceeds its entire net worth at the end of any financial year. This means an ailing company has to wait till such time to be declared a 'sick company'.

While there are creditor-friendly laws which help in liquidating such firms rather than restructure them. However, such laws face conflicts with regulations on land and labour laws which prevent the selling of property or the laying off of workers at the factories.

However, it seems that the government has come up with a bankruptcy code that could solve the current mess. As reported by 'Economist', a new bill has consolidated various laws into one and is designed to reduce conflicts among creditors. The new code also sets a deadline of 180 days to decide the fate of an ailing firm. Further, it puts the unsecured lenders ahead of the government in recovering the amount due. The new bankruptcy reforms will be introduced in the winter session of parliament. Will it be passed? Let us see...

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Bankruptcy law in a Deep Mess!". Click here!


Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

The Top 3 Stocks in the Market Revealed by One Document (The 5 Minute Wrapup)

Jul 16, 2018

How I side-stepped a big mistake made by a super investor.

Where Can You Find Safe Quality Stocks in This Market? (The 5 Minute Wrapup)

Jul 13, 2018

Don't define quality by market capitalisation. Look for quality stocks across market caps instead.

Have You Built A Rainy Day Fund Wisely? (Outside View)

Jul 13, 2018

PersonalFN explains how to go about building a contingency fund and the investment avenues for it.

More Views on News

Most Popular

Has A Bank Ever Told You Its Deposits are Riskier than Stocks? These Should Have...(The 5 Minute Wrapup)

Jul 3, 2018

Left on their own, the banks would possibly have to mark down the value of deposits by 90% to 100%.

The Real Truth About India's FDI, Beyond WhatsApp(Vivek Kaul's Diary)

Jul 4, 2018

The FDI numbers do not look very impressive once we adjust for repatriations as well as the overall growth in the economy.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

New Fund Offer - ICICI Prudential Pharma Healthcare and Diagnostics Fund - Should You Invest?(Outside View)

Jul 6, 2018

ICICI AMC launches an open -ended equity fund following Pharma, Healthcare, Diagnostic and allied theme.

When Disappointment Panda is Around. Buy Quality Stock like This!(Chart Of The Day)

Jul 6, 2018

Buy Companies that can fight all kinds of Pandas and Bears in the long run.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jul 16, 2018 12:19 PM