Insolvency and Bankruptcy Code – pro-capitalist, anti-worker and anti-social

Since the Modi government was sworn in, the ruling class of capitalists has been demanding various measures to improve the ‘ease of doing business’. When the World Bank recently announced an improvement in India’s world ranking in terms of ‘ease of doing business’, from 131 to 100, it was hailed as a big achievement by the Modi government and the capitalist monopoly houses. One of the important measures taken to achieve this improvement in the ranking was the enactment of the Insolvency and Bankruptcy Code (IBC), which came into force in December 2016.

The well-known American capitalist magazine, Forbes, says in one of its articles, “Bankruptcy is the most important part of capitalism.” Capitalism operates on the principle that when a company is making profits, capitalists should be able to put it all into their pockets; but if, for whatever reason, a company makes losses, there should be a legal way to shift them on to the backs of the workers and the general public. Insolvency and bankruptcy laws in capitalist countries do exactly that.

Indian and foreign capitalists not only want to be able to start a company in a short time, they also want to be able to wind up a company quickly, when it is not fetching them their expected profits. They want laws and rules which allow easy entry and easy exit from business. Prior to enactment of the IBC, average time to wind up a company in India was reported to be 4 years; and there were 12 laws concerning insolvency. Capitalists had been demanding one unified law to deal with insolvency and bankruptcy and the closing down of a business in a time bound manner. This is what has been done through the enactment by Parliament of the IBC, 2016.

The well-known American capitalist magazine, Forbes, says in one of its articles, “Bankruptcy is the most important part of capitalism.” Capitalism operates on the principle that when a company is making profits, capitalists should be able to put it all into their pockets; but if, for whatever reason, a company makes losses, there should be a legal way to shift them on to the backs of the workers and the general public. Insolvency and bankruptcy laws in capitalist countries do exactly that.

Bankruptcy is a legal status, usually imposed by a Court on a company or individual, declaring inability to meet debt obligations. The IBC creates a formal Insolvency Resolution Process (IRP) for businesses, which requires the bankrupt entity to either come up with a viable survival mechanism or accept speedy liquidation. This new law has created a new regulator — the Insolvency and Bankruptcy Board of India. The process can be initiated by the banks which have lent money or by the owners themselves. When the IRP is in progress, creditors’ claims are frozen for 180 days, during which time proposals for revival are received and the future course of action is decided. Within those 180 days, 75 per cent of the creditors must agree to a revival plan; otherwise, the firm automatically goes into liquidation. The time duration can be extended by 90 days, if required and if creditors agree.

The IBC repeals several previous laws including the Presidency Towns Insolvency Act, 1909, Provincial Insolvency Act, 1920, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, and Sick Industrial Companies (Special Provisions) Repeal Act (SICA), 2003.

In May 2017, the Reserve Bank of India asked several commercial banks to take 12 companies, with total outstanding bank loans of Rs 2,25,000 crore, to the bankruptcy courts. The companies referred included Essar Steel, Monnet Ispat, Bhushan Power & Steel, Bhushan Steel, Electrosteel Steels, Alok Industries, Amtek Auto, Jaypee Infratech, Lanco Infratech, Jyoti Structures, ABG Shipyard, and Era Infra. Now that these companies have been referred for bankruptcy, many other creditors have come forward with their claims of money owed by these companies. The aggregate claims against just nine companies have swelled to Rs 3,25,000 crore.

In the case of Jaypee Infratech, there are nearly 30,000 people who have given advance money for delivery of homes, which this company failed to do. The agitation by these thousands of people, whose life-long savings were in danger of getting wiped out, forced the Supreme Court to order that any decision regarding Jaypee Infratech must protect the interests of home owners and not just of banks and other lenders.

In August 2017, RBI drew up the second list of 26 companies and asked the banks to take these cases also to the bankruptcy court if no other solution is found by December. The list is reported to include mainly companies from the power, telecommunications, steel and infrastructure sectors. It is reported to include two large companies, Videocon Industries Ltd and Jaiprakash Associates Ltd, who together have loans of nearly Rs 1,00,000 crore.

A company’s case is taken up for resolution under the IBC only after getting clearance from the National Company Law Tribunal (NCLT). By 1 Sep 2017, as many as 655 cases have come up to NCLT for resolution under the IBC.

In August 2017, the first insolvency resolution order under the IBC was announced in the case of Synergies-Dooray Automotive Ltd (SDAL), a maker of alloy wheels for cars. It gives an idea of how and in whose benefit the IBC is going to work. The total claim amount against the Company was Rs 972 crore. The creditors agreed for the resolution plan put up by another company owned by the same capitalist to take over SDAL and pay just Rs 54 crore against the pending claims. Similar deals have emerged in the case of two other companies as well, namely, Chhaparia Industries and Sree Metaliks. Capitalists owning companies referred for bankruptcy were using various means to retain their control while getting large amounts of bank loans written off, through the IBC.

These cases drew a lot of public criticism. People could see that the whole IBC process was assisting the capitalist loan defaulters at public expense. This forced the government to make an amendment to the code, partly to cover up this blatantly unfair practice and partly in response to opposition from some big capitalists to the participation of the old promoters in the bidding process. In effect, the amendment promulgated in November 2017 will open up the doors for acquisition of "bankrupt" companies to capitalists not related in any way to the existing business.

Many capitalist monopoly houses are excited about the IBC. They see an opportunity to acquire the companies, referred for bankruptcy, at throw away prices. It is reported that Tata Steel, Jindal Steel and Arcelor Mittal are keen to acquire many steel companies referred for bankruptcy. Banks and creditors are under pressure to accept low price offers as otherwise the company automatically goes into liquidation. Assets of liquidated companies are supposed to be sold off and money so received is supposed to be distributed among all the claimants, including workers. Capitalist owners of many of these companies have, however, already siphoned off most of the valuable assets. Hence the banks know that little money will be realised by sale of the assets. They therefore feel it is better to accept whatever partial loan repayment they are offered and write-off the rest. What is worse, all the workers of a liquidated company lose their job without any compensation.

The IBC process is yet another method devised to enable monopoly capitalists to legally loot workers and the public at large. The IBC will lead to further monopolization and concentration of wealth. Many jobs too will be lost as the acquiring capitalist will use the bad financial condition of the acquired company as the pretext to reduce number of workers and increase their workload.


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bankruptcy    Financial sector    IBC    Dec 16-31 2017    Political-Economy    Rights     2017   

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