Thread by @bhargavizaveri

Co-authored an article on why India's decision to suspend its bankruptcy law in its entirety will harm the very firms that it seeks to protect. We suggest 3 key measures to make bankruptcy law work to our advantage in a pandemic. 1/n
bloombergquint.com/opinion/covid-…

Key intuition is that bankruptcy law allows a debtor time & a negotiating platform to restructure its debts. A possible fresh start. It offers creditors transparency and equal treatment vis-a-vis similarly placed creditors.2/n

There are genuine concerns tht bankruptcy law won't work for small businesses. Several small businesses are proprietorships/unincorporated entities. They deserve the benefit of the law dealing with personal insolvency: a calm period, a repayment plan & a possible fresh start.3/n

On interim financing concerns, we propose tht govt set up a fund to provide working capital loans to firms that use the law to restructure their debts. If firm gets restructured, Govt. loan will be repaid over time. If firm gets liquidated, Govt. has a priority on this debt.4/n

On recapitalisation concerns, the adage that India has poor cos, no poor promoters, will work to our advantage. Promoters will likely recapitalise viable firms. To make this happen, remove impediments such as section 29A which restrict the pool of bidders.5/n

On judicial capacity, temporarily dispense with litigation-prone provisions, such as S.29A and allow for pre-packaged insolvencies which need a one time court approval. Here, micro-studies of the NCLT, such as those conducted by @surbhaai, @varun_mrwh et al are useful. 6/n

They study 400 odd cases to find that most adjournments at the NCLT are for filing additional documents (vakalatnamas, etc.). Fix this (admittedly easier said than done), but this is a constant constraint across good & bad times. 7/n

In short, suspending a useful legal instrument might soothe sentiments, etc, but will harm the very people who it seeks to save. Instead, shake-off the bankruptcy-stigma & meet bankruptcy boldly when you see it. #okbye #covid19 8/end

Tagging some banking/ bankruptcy geeks I know: @menakadoshi @MandarKagade @The_RichaRoy @dugalira @resanering @KaushikVaidya @anand_kankani

@threadreaderapp please unroll.