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Stakeholders of bankrupt firms should not be guided by individual gains: CEA

On Friday, Chief Economic Advisor Krishnamurthy Subramanian said that stakeholders in insolvent enterprises should make judgments based on what is best for the overall bankruptcy resolution ecosystem rather than what is best for them individually.

At a conference titled "Five Years of the Insolvency and Bankruptcy Code (IBC) and the Way Forward," he said, " Individual stakeholders make decisions based on what is best for them rather than what is best for society, according to Subramanian, and the results of IBC or any other system might be caught in an inefficient equilibrium.

Subramanian invoked the concept of ‘dharma,' or the right course of action, to suggest that decisions made with the greater good in mind could improve the outcome of the IBC, which was one of the most important reforms undertaken by the Narendra Modi administration during its previous term in office.

Subramanian's remarks on the collective good as a guiding principle for decision-making in the event of insolvent enterprises are made in light of the high level of haircuts taken by lenders in the case of some of the bankrupt firms.

Earlier this month, the Parliamentary Standing Committee on Finance, chaired by BJP leader Jayant Sinha, voiced alarm about the trend and proposed a rule of conduct for the panel of lenders in charge of a company in bankruptcy proceedings.

Former Chief Justice of the J&K High Court, member of the National Human Rights Commission, and former president of the National Company Law Tribunal (NCLT), Justice (Rtd.) M.M. Kumar, who also spoke at the Confederation of Indian Industry (CII) conference, said that professionalism was lacking among insolvency professionals, lenders, and others.

According to Justice Kumar, there needs to be some rethinking about how to revitalise certain areas and instil professionalism. He believes that the pre-pack scheme (an informal bankruptcy settlement method available to small enterprises) should be made universal. The sector has also requested that the scheme's scope be expanded to include larger enterprises.

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