THE HINDU Editorial Vocabulary - May 22, 2018 - Topic 1

Miles to go for the new bankruptcy code

Good news has finally started to roll out of the refurbished bankruptcy courts. Tata Steel acquired 73% stake in the bankrupt firm Bhushan Steel for about Rs.35,000 crore last week, making it the first major resolution of a bankruptcy case under the new Insolvency and Bankruptcy Code (IBC). Bhushan Steel was one among the 12 major accounts referred to the National Company Law Tribunal at the behest of the Reserve Bank of India last year to ease the burden of bad loans on banks. 

The proceeds from the acquisition will go towards settling almost two-thirds of the total outstanding liabilities of over ₹56,000 crore that Bhushan Steel owes banks. While it may be unwise to read too much into a single case, the Bhushan Steel resolution is nevertheless an encouraging sign for banks because they typically manage to recover only about 25% of their money from defaulters. In fact, between April 2014 and September 2017, the bad loan recovery rate of public sector banks was as low as 11%, with non-performing assets worth ₹2.41 lakh crore written off from their books. The Finance Ministry now expects banks to recover more than ₹1 lakh crore from the resolution of the other cases referred by the RBI to the NCLT. If the banks do indeed recover funds of this scale, it would considerably reduce the burden on taxpayers, who would otherwise have to foot the bill for any recapitalisation of banks. Even more important, speedy resolution would free valuable assets to be used for wealth-creation.

The resolution of one high-profile case, however, should not deflect attention from the many challenges still plaguing the bankruptcy resolution process. The IBC, as the government itself has admitted, remains a work in progress. This is a welcome piece of legislation to the extent that it subsumes a plethora of laws that confused creditors; instead it now offers a more streamlined way to deal with troubled assets. But issues such as the proposed eligibility criteria for bidders have left it bogged down and suppressed its capacity to help out creditors efficiently. Also, the strict time limit for the resolution process as mandated by the IBC is an area that has drawn much attention, and it merits further review in order to balance the twin objectives of speedy resolution and maximising recovery for the lenders. To its credit, the government has been willing to hear out suggestions. It would do well to implement the recommendations of the Insolvency Law Committee which, among other things, has vouched for relaxed bidder eligibility criteria. Going forward, amendments to the bankruptcy code should primarily be driven by the goal of maximising the sale price of stressed assets. This requires a robust market for stressed assets that is free from all kinds of entry barriers.

Vocabulary

Refurbish: renovate and redecorate something, especially a building

Example: The premises have been completely refurbished in our corporate style

Synonyms: renovate, recondition, rehabilitate, revamp, overhaul, restore

Acquire: buy or obtain an object or asset for oneself.

Example: Instead, tax will become payable automatically 30 days after the date that the purchaser acquires the property or land.

Synonyms: obtain, come by, get, receive, gain, earn, win, come into, be given

Insolvency: the state of being insolvent; inability to pay one's debts.

Example: The club was facing insolvency

Behest: a person's orders or command.

Example: They had assembled at his behest

Synonyms: instruction, requirement, demand, insistence, bidding, request

Acquisition: an asset or object bought or obtained, typically by a library or museum.

Example: Among the museum's acquisitions , he discovered a piece of furniture that he had made 40 years before.

Synonyms: purchase, buy, gain, accession, addition, investment, possession

Nevertheless: in spite of that; notwithstanding

Example: Statements which, although literally true, are nevertheless misleading

Synonyms: nonetheless, even so, however, but, still, yet, though, in spite of that

Resolution: a firm decision to do or not to do something.

Example: She kept her resolution not to see Anne any more

Synonyms: intention, resolve, decision, intent, aim, plan, commitment, pledge

Subsume: include or absorb something in something else.

Example: Most of these phenomena can be subsumed under two broad categories

Attention: the action of dealing with or taking special care of someone or something.

Example: The business needed her attention

Synonyms: consideration, contemplation, deliberation, thought, study

Recommendation: a suggestion or proposal as to the best course of action, especially one put forward by an authoritative body.

Example: The committee put forward forty recommendations for change

Synonyms: advice, counsel, guidance, direction, suggestion, proposal

Robust: strong and healthy; vigorous.

Example: The Caplans are a robust, healthy lot

Synonyms: strong, vigorous, sturdy, tough, powerful, solid, muscular