Clearing The Fog: A Deep Dive Into The Insolvency Code

Defaulter’s Paradise Lost – Demystifying the Insolvency and Bankruptcy Code, 2016. Anant Merathia. 2023. Pages 459. Rs 1,150.

Anant Merathia’s book Defaulter’s Paradise Lost – Demystifying the Insolvency and Bankruptcy Code, 2016 is a concise charting out of the IBC, 2016.

What is most interesting in the book is, that the insolvency code and the evolving area of jurisprudence in this country, having attracted various interpretations and constant amendments by the legislature, has been noticed and discussed by the author in a precise manner which will be helpful to the legal fraternity, chartered accountants, company secretaries, banking and finance professionals, academicians, the business sector and also the judiciary as a point of reference.

The book is also an excellent resource for students of other streams as the language of the book ensures that the reader is not lost in complicated legal jargon, enabling students who are not from a legal background to get a comprehensive understanding of issues, starting from indiscriminate lending, its impact on businesses, legal challenges with respect to recoveries, introduction of new laws, and its impact on businesses.

In today’s time and age, when an economic legislation which has such a heavy bearing on multiple stakeholders starting from the industry itself; cannot be seen separately in silos and converges with other fields, this book by Merathia perfectly encapsulates how one can integrate independent streams of knowledge and bring it in a well thought out document.

The author has addressed the issues faced, the evolution of the law, some practical challenges and has also offered suggestions and advice to the stakeholders on how to possibly smoothen or improvise the framework which is crucial to ensure that this particular law doesn’t go down the same route like its predecessor, and instead is successful in achieving its objective.

To begin with, I applaud Merathia for his excellent work on the initial chapters where he has set out the context of introduction of this law by laying down the regimes prior to IBC, the precarious situation of the banking sector that needed a new and comprehensive law to address their challenges.

Further, the author has touched upon the legal lacuna and lags that were there in the previous laws.

The impact of IBC chapter starting from the bird’s eye view and further discussing very relevant aspects such as disparities between large-sized and mid-size companies under this regime; focus on the struggles of the MSME sector and how has this law has panned out vis-a-vis their issues is noteworthy.

The subsequent chapter which introduces the reader to the framework of this law is again very helpful for a professional who is not so well versed with IBC or any such stakeholders who does not work within this framework on a day-to-day basis.

Practical aspects such as the jurisdiction, threshold for initiating corporate insolvency, evolution of legal issues such as the law of limitation and disputes, the key important timelines under the law, the role of newly setup institutions such as the Insolvency and Bankruptcy Board of India (IBBI), the role of insolvency professionals along with their practical difficulties have all been beautifully covered thus making the law in true sense accessible to the ultimate affected party.

The same goes for the subsequent chapter where the author covers all the roles, responsibilities and issues of all key stakeholders right from the corporate debtor to the promoters, operational creditors, secured and unsecured financial creditors, employees, the committee of creditors, resolution applicants, insolvency professionals, guarantors and even the homebuyers in some cases.

The book is peppered with Do’s and Don’ts for various stakeholders, for instance the importance of maintaining systematic documentation is emphasised for not just operational creditors but also financial creditors from the less organised sectors; there are a set of instructions and suggestions for operational creditors to help them streamline and organise the business practices in a better and more streamlined manner.

There are several important suggestions for promoters which should be taken note of. The specific chapter about the promoter who is typically seen as a “defaulter” is well curated.

The author emphasises the new era of doing business and the concept of ease of exit along with the emotional baggage that promoters may have with respect to their businesses and addresses this sensitive aspect under the sub-heading — "the subtle art of letting go".

In fact, the book gives a fresh perspective wherein business ventures are actually allowed to fail and that there can be a second innings for an entrepreneur and there is nothing wrong in that.

There is also a chapter dedicated to insolvency professionals which provides practical exposure to the various ground realities they may face on the job, and this is extrapolated from the author’s own experiences as a counsel for RPs and liquidators.

A couple of technical aspects that have been covered very well in this book include the issues and disparities faced by the operational creditors in Chapter 6 wherein the author discusses about the conventional business practices which itself have certain inherent flaws and then how typically operational creditors gets significant haircuts under IBC and in some cases even a “zero” against their rightful dues and its impact on their business.

The detailed discussion on the precarious position of the operational creditors in the corporate insolvency process as well as in the case of a liquidation has been brought out well by Merathia and I would further add that if an aspect of continuity of business can be assured to these operational creditors; that would to some extent at least give them some hope in an otherwise not so friendly regime as far as they are concerned.

Two other aspects that I would like to highlight which have been brought out well in this book is the condition of the MSME (micro, small and medium enterprises) sector, unique challenges faced by them, the limitation due to the insertion of Section 29A barring the promoter to take part in the corporate insolvency process and then giving them some reprieve under Section 240A given the specific nature of this sector, wherein not only is the business intertwined with the identity and know-how of the promoter but also the limited interested resolution applicants one can finds here.

Further Chapter 12 which is pre-pack insolvency puts together a concise commentary on every single aspect of this yet to be tested aspect of IBC, 2016.

While on one hand, IBC and the various facets of this law have been and contune to be being tested from time to time in the courts; a simplified and cogent discussion over the same by the author covering almost all the major issues tested so far is highly appreciable.

Defaulter’s Paradise Lost gives a clear overview of what potential resolution applicants can expect in this takeover process under the code.

The bidding process for a distressed asset and the level of diligence that can be done based on the contents of the information memorandum and impact of the "Clean Slate Theory" on their business prospects etcetera is enunciated in it, which makes for an interesting read.

The book also guides a resolution applicant or a potential acquirer of a company to look for relevant parameters while bidding or showing interest in a company.

Hence this chapter is of specific importance and clears the air about a lot of myths around acquisition of companies through the corporate insolvency legal process.

This book while dealing with a complex legislation, has ensured that the law is made more accessible to a wide set of readers. Most importantly, Merathia and his team have covered the subject of the insolvency code, both from a bird’s eye view as well as a detailed 360 degree view, from the perspective of all stakeholders.