Bankruptcy Law – An Opportunity to Revive Debt-Ridden Business
Business failure is an integral part of any economy. If the failure is a result of a wrong business model or fraud, then a quick liquidation may be the most viable outcome. However, there may be situations such as while the business is generating revenue, the company is still failing to pay debt. This may due to a wrong financial model resulting into a mismatch between receivable and payable of the entity. A debt restructuring may be an effective resolution under such situation rather than liquidation. Success of a bankruptcy regime depends up on its ability to strike a balance between liquidation and restructuring. The erstwhile bankruptcy regime in India failed to create such a balance. Instead of extending support to a genuine entrepreneur who is on a financial stress, the lenders and other creditors attacked such businessman with multiple legal actions such as proceedings under SARFAESI Act for taking possession of secured properties; filing cases before debt recovery tribunals