Promoter conundrum: Small oversights could undermine IBC's effectiveness

The Insolvency and Bankruptcy Code (IBC) is India's best chance at tackling its crisis of bad debt

Potential problems are brewing in Section 29A of the Insolvency and Bankruptcy Code Act that bars promoters from bidding for stressed assets. Broadly speaking, there can be no argument with the intent of the ordinance, introduced late last month. A degree of moral hazard is inherent in permitting the promoter of a defaulting company to bid for it, or other companies, after lenders have been forced to sustain losses. The issues that have arisen in practice, however, point to the urgent need for explicit clarifications to plug potential loopholes that test the spirit of Section 29A.

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