Mukesh Ambani vs Jeff Bezos fight for Future points to lacunae in India’s bankruptcy law

Corporate death is a characteristic of capitalism, not a bug. India needs a second try at bankruptcy reform, with more and superior judges supported by political will.

 

A leading telecom carrier and a popular retailer are successfully displaying a reflection of India’s union with assisted corporate rise and fall. The image peering back notifies one of the defeats seized from the claws of victory. The stumbling of the five-year-old bankruptcy experiment being blamed on to “isomorphic mimicry” by development scholars clarifies the fact that Emerging economies imitate the success mantras of Western institutions but lack in terms of content, which renders towards a guaranteed failure.

There was a clear ray of excitement amidst the Global investors for India’s 2016 insolvency law, because they were hoping to extract profit from the 19 trillion rupees of bad loans, inclusive of those written off by banks in past eight years. As there was an Initial success in finding new homes for distressed steel plants, it rose the hopes that the savings-deprived economy would untwine valuable capital from failed ventures. But as per the current scenario, creditors are resisting at 90% haircuts, and bailout funds are discouraged with long delays in admitting cases by tribunals to a big shortage of judges.

Many large, indebted businesses are consistently shutting down. Besides this, Vodafone Idea Ltd. Is finding it difficult to repay the $30 billion it owes the government and banks. The hope to stay alive by selling assets to Mukesh Ambani’s bigger empire was instilled in Future Retail Ltd. But as a twist from Amazon.com Inc., where Future Group’s founder Kishore Biyani had taken money from with an agreement to not sell out to India’s richest man, legally blocked the deal. Now until Biyani and Jeff Bezos come to a common point of compromise, the survival of the firm is at risk.

India has imitated the British in terms of considering creditors in charge of insolvent firms. Debtors are allowed to initiate in-court bankruptcy proceedings, or lenders can pull the plug. This looks good on paper, but if the institution actually worked to serve its intended purpose, India Inc. wouldn’t still be struggling with large enterprises which are on the verge of shutting down or working dead.

There’s still no concrete reason behind what went wrong. As per Bloomberg Quint statement, Vodafone Idea is hesitant to file. The past experiences of other bankrupt phone networks suggest that it won’t be allowed to retain its licenses in insolvency.

The banks have recently extended the maturity of Future’s $1.4 billion of onshore debt. Last week, Future paid the coupon on its offshore bonds in the stipulated 30-day grace period. Though the notes are still trading at about 60 cents to the dollar.

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