The NCLT - IBC Framework Evolutionary Context and Implications for KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE The NCLT - IBC Framework Evolutionary Context and Implications for Corporate India at the Strategic Level   30th August 2018      

KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE I. The Framework The Companies Act 2013 - Came into effect 12 September 2013; More sections notified subsequently, for instance 1 April‘14 - Updated the 1956 Act, especially the auditor rotation, the board structure and processes, the mandatory CSR National Company Law Tribunal (NCLT) - Constituted under Companies Act 2013, coming into effect 1 June ‘16; with appellate NCLAT, further Supreme Court - Jurisdiction on all company matters, including that of erstwhile BIFR/SICA, company law board - 1 principal bench at New Delhi, 11 benches in major cities    

KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE Insolvency and Bankruptcy Code (IBC) 2016 - Consolidated, single law on the insolvency and bankruptcy, came into effect from August 2016; NCLT the insolvency adjudicator for companies and LLPs, DRT for rest - Process: Plea by a corporate debtor/creditor at NCLT; Decide <14 days and appoint IRP (Insolvency Resolution Professional); Resolution plan within 180 days extendable by 90 days [90-45 days if assets <Rs. 1 cr.], else liquidation - IBBI (Insolvency and Bankruptcy Board of India), established 1 Oct’16, to implement the IBC – writes and enforces the rules, regulates and oversees the professionals    

KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE II. The Evolution Still early days, for the IBC, NCLT process - Just over two years, since the framework was put into place, where the process itself for a case is envisaged to last around a year, on a clockwork - Eight sets of removal of difficulties, updates and amendments to IBC 2016, since May’17, and the latest ones this month (August’18) itself - Several more can be expected, as the conceptual and procedural issues are there and will emerge – the bankruptcy code in the US dates to 1800, with numerous amendments, and was rewritten in 1898, 1938 and 1978 The beginning is robust and the momentum has set-in - A few significant cases have run the full course to resolution, payments, handovers – first one Dooray Automotive, Aug’17; Bhushan Steel, May’18 - ‘Twin balance sheet’ problem, at the banks and companies, is a major (hard to ignore) and urgent (hard to postpone) national issue – providing the push, perhaps irreversibility - Initial set of resolutions point to the validity of framework as a construct and its operability in the Indian conditions    

KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE A paradigm shift for India – the economic and socio-cultural - The bankruptcy an integral and essential part of ‘market’ economy – the risk, success and failure at corporate level and the rejuvenation and resource re-allocation at national level - From ‘a company or unit cannot go unviable and is a national waste’ till early-1980s, ‘should be revived in most of the conditions’ thereafter and BIFR (1987) as instrument, the framework is a milestone for ‘market’ economy in India - Marks a shift from the overt or covert inefficiency and cronyism, in the small or large units and the private or public sector, towards the inviolable market logic for the formation, growth, existence – or quick demise of corporations - NCLT/IBC framework could strengthen ‘upstream’ and engineer ‘downstream’ reforms – in banking, financial sector at large, corporate sector as a whole, and national economy, over the coming years, decades - The framework takes the market economy deep and wide – to redefine the smallest inter and intra-corporate transactions and the emotional, social and cultural aspects of corporate functioning and its existence    

III. The Implications - Curb excessive growth & diversification KarkiAssociates STRATEGY  ORGANISATION  GOVERNANCE III. The Implications - Curb excessive growth & diversification - Prudent leveraging and bias for equity financing - Improve financial risk-return-maturity balancing - Discourage project capital padding and diversion - Superior and tighter capital – operational linkages - Enhance transparency and accountability in funds flows   Business Organisation Governance - Conserve capital, improve capital/output ratio, avoid misuse - Greater authority to the finance function in the monitoring and control of projects - Correct, thorough and prompt reporting of the financial data and material developments - Set-up formal creditor-debtor assessment, exposure limits and follow-up procedures - Greater autonomy and authority to operational finance, vis-à-vis sales and other functions - Ability to act decisively and quickly, as NCLT led very public-damaging acts can precipitate in months