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Updated on: Friday, August 27, 2021, 09:15 PM IST

Feudalism of corporate debtors gone after IBC implementation, says CEA

PTI
The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets./CEA K V Subramanian |

The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets./CEA K V Subramanian |

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With the implementation of the insolvency law, the days of feudalism of corporate debtors where they had considered it their divine right to be in control are gone, Chief Economic Adviser K V Subramanian said on Friday.

The Insolvency and Bankruptcy Code (IBC), which came into force in 2016, provides for a market-linked and time-bound resolution of stressed assets. Once a stressed company is admitted for resolution under the IBC, the Committee of Creditors (CoC) will be in charge and the company's affairs are managed by a resolution professional. If the resolution is not successful, then the company goes into liquidation.

"Before IBC, there used to be feudalism where the corporate debtor took it to be his or her divine right to be in control... There is a very very clear recognition that those days are gone. That feudalism actually is something that is not coming back...Feudalism is never ever good, but feudalism in a capitalistic system I think is possibly the worst," he said.

Speaking at a conference on ''5-Years of IBC, 2016 & Way Forward'', organised by industry body CII, Subramanian also said that systems, whether it is IBC or other systems, "can be caught in inefficient equilibria when each agent justifies his or her sub-optimal action by saying that other entities are behaving sub-optimally and therefore I am behaving sub-optimally".

According to him, the entire concept of dharma is that there is a much bigger goal and if you think from an economist's perspective, dharma is actually the concept of aspiring for what is socially optimal.

"... If every stakeholder and every agent does what he or she thinks about dharma and that is something based on an internal compass of what is socially optimal, I think a lot of these debates we are having will not be required at all," he said.

However, he did not elaborate on the debates he was referring to.

"When we think of the concept of dharma from an economic angle, you start realising that why it was such a powerful idea... in the case of IBC, there are some actions that every stakeholder can take which will be optimal for the entire IBC system as a whole vis-a-vis what every entity doing that is privately optimal for them...," he said.

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Published on: Friday, August 27, 2021, 09:15 PM IST
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