Go First was once the darling of India’s startup scene, with its innovative products and services revolutionizing the industry. But its bankruptcy has raised serious questions about how bankruptcy proceedings are handled in India, prompting many to conclude that India’s bankruptcy code is inadequate and testing the strength of its bankruptcy regime. This article examines the flaws that had led to Go First’s insolvency and the changes that could be implemented to address them.
1. Go First’s Insolvency Exam
At Go First, insolvency examinations are taken seriously. The tests evaluate knowledge of a vast range of legal topics relevant to the field. Some of the key areas covered are:
- Insolvency law
- Business restructuring
- Bankruptcy proceedings
- Sarbanes-Oxley requirements
The exam is designed to be challenging, testing not only a candidate’s knowledge, but also their problem-solving capabilities and ability to think on their feet in a highly pressurised situation. Successful completion of this examination is necessary for gaining admission to the Go First Insolvency Professional program. This difficult but rewarding entry exam is the first step in a career path that leads to a wide range of possibilities.
2. Assessing India’s Bankruptcy System
India’s bankruptcy system was overhauled and passed as the Insolvency and Bankruptcy Code (IBC) in 2016. The new system was designed to help companies to restructure and resolve their debts quickly while avoiding the complexity of India’s older systems. Since then, progress has been made in addressing the deficiencies in India’s bankruptcy system. Here are some key facts about how it’s assessed:
- The World Bank Group’s Ease of Doing Business Report ranks India 33rd out of 190 in insolvency resolution procedures — the highest such ranking in the world.
- IBC has allowed companies to complete debt resolution more quickly than ever before, allowing them to move on and focus on growth.
- There has been an improvement in the recovery rate of creditors, increasing to almost 35%, which is significantly higher than India’s historical average.
However, some drawbacks remain. The existing framework does not provide enough emphasis on the need for corporate debt restructuring and makes it very difficult to resolve complex cases in a timely fashion. It has also led to increased court proceedings, which can often cause significant delays in debt resolution. The government has taken steps to reduce the burden on creditors in the court system, by introducing modifications such as the National Company Law Tribunal, but more needs to be done.
3. Examining the Implications of Insolvency
There are many implications of insolvency that need to be considered. Financial constraints are one of the most apparent. Insolvent businesses often have to make drastic changes to their operations just to stay afloat. This may include reducing staff, selling assets and cutting back on services.
Another way that insolvency can take its toll is the stress it can cause for business owners. There is the risk of legal action, dealing with creditors and the overall uncertainty of the future. Fortunately, there are measures that can be taken to minimise the impact of insolvency. Here are some steps business owners can take:
• Obtain a comprehensive understanding of the insolvency process and the legal rights of the parties involved.
• Prepare as much as possible financially, by budgeting, cutting expenses, and ensuring assets are secured.
• Talk with debtors and creditors before the process begins to discuss any potential solutions.
• Investigate any options for debt restructuring or entering into voluntary administration.
• Seek assistance from a professional such as an insolvency practitioner or accountant.
4. What Lies Ahead for India’s Bankruptcy Regime?
India has come a long way to establish an efficient Insolvency and Bankruptcy Code (IBC) for efficient bankruptcy filings. The IBC, which came into effect in 2016, was seen as one of the most important reformations ever carried out in India’s bankruptcy regime, enabling a comprehensive procedure to address defaults by businesses.
India’s bankruptcy regime is set to go through a significant transition in the upcoming days. The Insolvency and Bankruptcy Code Amendment Ordinance 2019 was passed by the President of India in June 2019, leading to some major changes in the IBC. Amongst most of the noteworthy changes, one of the most important ones are:
- Measures to curb delays in dealing with cases: The ordinance has introduced measures to help speedily settle cases, with a deadline of 330 days!
- Committee of creditors: Companies with a certain debt threshold will now have to constitute a minimum of 10 members to form a committee of creditors.
- Surety and other stakeholders: It’s no longer just the lenders or creditors to be considered during the insolvency proceedings, surety and other stakeholders must be heard and their deals must be feasibly taken into account.
Go First offers a valuable case study in the implications of India’s bankruptcy regime, showing both its potential for success and its limitations. Although the rise and fall of Go First may not have been the result of the legal system alone, its story highlights the importance of ensuring the effectiveness of the country’s insolvency policies. India has demonstrated how a far-reaching and well-thought-out framework can create significant and positive generational impact, yet the country must also consider how to continue to improve upon this system. Only then will India be able to further tap into its potential and help its citizens build a better future.