Akshaya Kamalnath on Indian Bankruptcy Law

In this episode, Akshaya Kamalnath, ​incoming Lecturer at the Auckland University of Technology School of Law, discusses her article, "Corporate Insolvency Resolution Law in India – A Proposal to Overcome the ‘Initiation Problem’" forthcoming in the University of Missouri-Kansas City Law Review. She begins by discussing the history of India's corporate insolvency law, explaining how the experience of the Sick Industrial Companies Act of 1985 and the collection of statutes that regulated insolvency of limited liability corporations led to a distrust in the Debtor in Possession Model for bankruptcy. She then outlines the new law regulating corporate insolvency, the Insolvency and Bankruptcy Code, which transformed restructuring into a creditor-focused model and created a new efficient structure of initiating the insolvency process. However, she explains that the creditor-focused model of the Insolvency and Bankruptcy Code has led to a reticence on the part of corporations to initiate the process prescribed in law, as company directors often lose control of corporations to creditors.

Kamalnath notes that this 'initiation problem' is due to the structure of many Indian companies, which are owned by family groups whose promoters that raised money during the corporation's establishment continue on to leadership positions within the organization. She notes that these promoters have few incentives to lose control of their companies, and are often part of larger groups that have great influence on the financial, governmental, and business sectors. As a solution to this problem, Kamalnath looks to the corporate law of Australia and the United States, finding that Australian corporate law has the alternate problem of excessive incentives for managers to enter the insolvency process. She finds a better model in American corporate law, proposing a "modified Revlon duty" upon managers to accept the highest offer for a company when soliciting bids in the pre-insolvency phase, regardless of organizational changes demanded by bidding firms. And she concludes that the Indian parliament has proven itself willing to amend gaps in corporate law, suggesting that future legislation could insert the "modified Revlon duty" into existing law regulating the duties of directors. Kamalnath is on Twitter at @Akamalnath.

This episode was hosted by Luce Nguyen, a college student and the co-founder of the Oberlin Policy Research Institute, an undergraduate public policy organization based at Oberlin College. Nguyen is on Twitter at @NguyenLuce.

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