Under the new insolvency and bankruptcy code, companies will face a deadline of 180 days to repay outstanding debts to lenders or face liquidation. Individuals who declare bankruptcy will be barred from contesting elections, while debtors can be jailed for up to five years for concealing property or defrauding creditors. ‘This is something which should put company promoters on guard,’ commented Indian Banks’ Association advisor M.R. Umarji. ‘They will think twice before committing a default.’

Sluggish system

There are currently around 70,000 liquidation cases pending in debt recovery tribunals and courts across India and approximately $120 billion worth of troubled loans to be recovered by the banks. According to World Bank estimates, winding down a failed company takes around four years in India and carries an average recovery rate of 25.7 cents to the dollar, one of the worst in emerging markets.

Sources: Asian Legal Business; Reuters