India has taken important steps to modernize its booming economy, and one of the latest is a sweeping revision of its bankruptcy laws, replacing a decades-old patchwork of rules that often left creditors at wits end, according to an article in a leading Indian legal publication co-authored by Mintz Group Director Michael Harrington.
India’s new insolvency law, passed in mid-2016, could “create opportunities to reduce information asymmetry in debt markets,” allowing for greater transparency before a deal is closed and deeper investigation into possible fraud after insolvency is declared, according to the article by Mintz Group director Michael Harrington and investigator Saranya Kapur. The article in Legal Era magazine pointed out that the World Bank ranks India 136th in the bank’s national ranking for resolving bankruptcy, much lower than Brazil at 67th, China at 53rd, Russia at 51st and South Africa at 50th.
The new legal code mandates that a corps of licensed insolvency professionals will oversee bankruptcy cases. It also calls for the creation of “information utilities” that will authenticate financial data about companies. Information on public firms would be largely in the public domain, while that on private companies would be available in a more limited way.
Ultimately, the data gathered by the information utilities “could prove to be a valuable data source while conducting due diligence,” the authors said. It also could “facilitate investigations conducted in conjunction with creditors or bankruptcy trustees to identify cases of fraud or embezzlement.”
Little wonder, then, as the authors said, that this new law is being “cheered by investors and the business community.”