Opinion: Government Departments Pose Major Hurdle in Bankruptcy Cases

There have been many heated debates of late about the 90% or higher haircuts that lenders have taken in several high-profile bankruptcy resolutions, the New Indian Express reported. Erstwhile promoters, resolution professionals and even the committee of creditors have all been blamed by turns for the state of affairs. Opinion writers have written angry columns, and TV channels have carried heated panel discussions. Policymakers have not been sitting idle, either: Several IBC clauses are being tweaked, and other new clauses are being introduced to plug loopholes and make the process smoother and more robust. One issue that has cropped up as a major hurdle in multiple bankruptcy cases but has seen very little discussion is the role of some government departments. There have been a number of cases where either an arm of the Union government or a state government department or a regulator has thrown a spanner at the resolution process. This should not be happening, because the IBC is fairly clear where the government dues stand in a bankruptcy proceeding. For all intents and purposes, the government is an operational creditor and not seen at par with financial creditors. In practice, though, things have become complicated in taking the resolution to conclusion in several sectors. Read more.

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