Imagine a huge corporation has taken hundreds of crores as loans from a government bank to set up a new factory. 5 years later, it seems that the business is not doing so well. The production has stopped. Most employees are fired. The instalment payments have stopped. What can the bank do? Is the money of the public lost?
This situation is extremely common in India at present. The total amount of such bad loans, called Non-Performing Assets in banking terminology, is threatening to destabilize the entire banking system of India. This has forced the government to introduce very advanced legislation for insolvency and bankruptcy in India.
This is where insolvency experts step in. Using the new law, they figure out if the business is doomed or if it can be taken over by a competitor with more funds and then run more efficiently. They may even sell off the machinery or intellectual property, unsold stocks and other assets of the company to raise as much money as possible to pay the creditors.
The Insolvency and Bankruptcy Code is a huge step. It has changed the economic math in India. It is expected to make the Indian economy efficient, and keep creditors in check.
However, it is not only banks who are massively benefiting from this law. Do you know who are the biggest beneficiaries of this law?
It is basically because we have a culture of not paying on time. Any businessman will tell you how hard one has to work just to get the money that is already due to you. The primary reason for this was the slow and inefficient civil court system where it takes years and a lot of money to file a simple money recovery suit.
That just changed with IBC. Provided that your recoverable is over 1 Crore, you can now threaten to take any company, LLP or partnership to NCLT for insolvency if they fail to pay you on time. It is efficient and fast. It takes weeks, and not years. It costs much less too! It is changing fundamental business equations in India.
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