Unsecured Lenders Initiating Maximum Insolvency Lawsuits In India

Unsecured Lenders Initiating Maximum Insolvency Lawsuits In India
Unsecured Lenders Initiating Maximum Insolvency Lawsuits In India

India’s newly introduced bankruptcy  law is unexpectedly proving to be popular with a set of lenders who are least likely to gain from pushing companies into the insolvency process.

Operational or unsecured creditors, hold dues that are not backed by any collateral, and are typically last in the queue for repayment in the event of an insolvency plea getting successful in National Company Law Tribunal the country’s dedicated bankruptcy court.

Despite this such parties have initiated 44 percent of all corporate insolvencies this year, making them the largest segment to do so , as per latest data released by the Insolvency and Bankruptcy Board of India.

Financial or secured creditors accounted for 32 percent of successful petitions.

With Indian banks struggling with record levels of bad debt , the bankruptcy law was enacted in 2016 as a way to encourage asset sales.

According to Khushboo Shah, a Mumbai-based lawyer with MDP & Partners, the law is becoming a bargaining tool for smaller unsecured lenders dealing with larger corporates who refuse to pay despite being solvent. She said that the bankruptcy law had become “a ray of hope” for such companies.

Larger Corporates Being Forced To Pay Unpaid Dues Of Vendors Or Contractors

The category of Operational creditors includes smaller vendors or contractors that have unpaid debt for goods or services provided.  In terms of rights to repayment, they come last after secured creditors and they are also not provided a seat on the lenders committee that decides on the resolution plan for a bankrupt company.

However bankruptcy-related lawsuits have the potential to shake up markets. Billionaire Anil Ambani owned Reliance Communications Ltd. dropped by 7 percent after an insolvency plea filed by Fortuna Public Relations Pvt., the company’s former PR agency, was heard by a Mumbai tribunal

Similarly, Jain Irrigation Systems Ltd.’s dollar bonds due in 2022 went down sharply after it was sued by German Express Shipping for unpaid dues. Jain Irrigation has responded stating in a filing that the claim will be settled shortly.

These lenders are usually open to settling and waiving off interest, if they are paid around 80 percent of the principal amount owned, Shah noted.

She acknowledged that some operational creditors were using the new bankruptcy rules as “ a strong arm tactic” but noted that this was the result of being neglected for a long time by the bigger corporate debtors.


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