Managing Partner of Martin Kenney & Co., Solicitors
When news began filtering through to our network of international fraud and asset recovery lawyers that India was in the latter stages of drafting a Bankruptcy Bill, our ears immediately pricked up.
At ICC FraudNet, we know how important bankruptcy laws can be in preventing and tackling corrupt practices. Therefore in terms of engendering confidence from both investors as well as providing remedy for financial malpractice, the importance of the Bill cannot be underestimated. While India is one of the fastest growing economies in the world, it is no secret that it hasstruggled to overcome historically high levels of bribery and corruption.
We studied the draft Bill and on a pro-bono basis we set about compiling our own white paper detailing suggestions that would increase the Bill’s effectiveness.
One of the amendments suggested was the addition of a chapter on cross-border insolvency cooperation. We recommended moderating some aspects of the Bill to bring it in line with current international standards. These amendments would enable Indian insolvency office holders to recover assets squirrelled away abroad, outside the Indian jurisdiction: an imperative move for justice. In fact, UNCITRAL (United Nations Commission for International Trade Law) has created an excellent Model Law on Cross-Border Insolvency (1997) and a Legislative Guide on Insolvency Law (2004). Recently, the UNCITRAL National Coordination Committee for India was established to deepen its engagement and be more receptive to views from India.
Much of India now knows the case of Kingfisher magnate Vijay Mallya, who has attracted international interest. Indian media has reported official sources stating the Central Bureau of Investigation (CBI) had filed various charges, including money laundering, and that an arrest warrant had been issued. Mallya left the subcontinent for the U.K. in March, owing about $1 billion to creditors. The Indian authorities are seeking his extradition.
Mallya sought to take advantage of the old, flawed Indian insolvency laws to delay and avoid creditor actions. In light of this case and others like it, India’s government acknowledged the need to address the failings with this new legislation.
Yes, the subject of bankruptcy is far from being chic. Yes, it is complicated and appears to be of interest to just the few specialists who work within its legislative constraints. But nothing could be further from the truth. Bankruptcy is of massive public interest and a central part of the legal infrastructure of any healthy and successful economy.
Indeed, World Bank figures suggest that in India creditors take 4.7 years to recover 25 percent of dues from a bankrupt firm, while in the U.S. they get 80 percent and without the inordinate wait. It is rumored that there are 60,000 ongoing bankruptcies in India awaiting resolution.
The new legislation will make those running companies take their liabilities seriously, and see unviable businesses wound up speedily, saving shareholders and creditors from greater loss. This natural selection process will ensure survival of the fittest and investment is available for those enterprises seeking to grow.
To take on the daunting task of writing this new legislation is a testament to those involved. To recognize that there may be scope to improve the draft is evidence of their determination to make the Bill as effective as possible, and we are honored to be able to assist.
On May 5, the Lok Sabha lower house passed the draft Bill, whereupon it moved to the upper house, Rajya Sabha. On May 11 it was passed by the Rajya Sabha and will soon be enacted. We hope that some of our suggestions will make it into one of the Bill’s subsequent amendments.
These are exciting times for the Indian business community, who will now be able to conduct their commerce safe in the knowledge that they will have the support and protection afforded by a piece of modern, fit-for-purpose legislation. A strong bankruptcy law for India, that prevents tactical bankruptcies and garners confidence within the international community, will buoy investor confidence. This is a classic example of how the private and public sectors can come together and work as one with mutually complimentary goals and ambitions.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative & asset recovery practice focused on multi-jurisdictional fraud & grand corruption cases. He is Co-Chair of ICC FraudNet's Task Force India www.martinkenney.com | @MKSolicitors