Corporate Insolvency Resolution Law in India – A Proposal to Overcome the ‘Initiation Problem’

54 Pages Posted: 3 Jun 2019

Date Written: April 15, 2019

Abstract

India introduced the Insolvency and Bankruptcy Code (“IBC”) in 2016 with a view to encourage quick and efficient corporate rescue and restructuring. It follows a UK style ‘insolvency professional in possession’ model rather than a US style ‘debtor in possession’ model. Within this model, the IBC has introduced some commendable infrastructure like dedicated company law tribunals, a dedicated regulator and strict timelines. However, the implementation and use of the law in the past two years have exposed a few problems. The main problems arise from directors, who are also controlling shareholders (referred to as promoters in India), refusing to cede control of the company. This article examines the problem at the pre-insolvency phase where directors are reluctant to initiate the IBC process and lose control of the company. The article proposes the introduction of a ‘modified Revlon duty’ when a near insolvent company is seeking bids. This duty will incentivize promoters to act in the interests of reviving the company rather than retaining control to the point of liquidation.

Suggested Citation

Kamalnath, Akshaya, Corporate Insolvency Resolution Law in India – A Proposal to Overcome the ‘Initiation Problem’ (April 15, 2019). University of Missouri-Kansas City Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3387001

Akshaya Kamalnath (Contact Author)

AUT Law School, AUT Univrsity ( email )

120 Mayoral Drive
Auckland, Victoria 1010
New Zealand

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