Fitch Ratings on Tuesday said that the Indian insolvency regime still suffers from issues such as lengthy processes as well as lack of a comprehensive and unified bankruptcy code. This comes in the way of minimising uncertainty relating to recovery outcomes.
The agency noted that although steps were initiated in 2002 to amend the Companies Act and unify the bankruptcy code by setting up a proposed National Company Law Tribunal, the provisions are yet to be enacted. The publication of Fitch?s report ?India?s insolvency regime and its impact on recovery ratings?, coincides with an increasing number of Indian corporates carrying out cross-border acquisitions and financing such transactions through international debt capital markets
?Research indicates that the general bias of Indian insolvency legislation had been in favour of the debtor, rather than the creditor. Despite the traditional emphasis on security, the timeliness and ease of enforcement has remained uncertain,? said Rakesh Valecha, senior director in Fitch?s Asia-Pacific Corporate Ratings Group, in the fourth of a series of special reports on insolvency regimes in Asia-Pacific published on Tuesday.
?Increasing cross-border acquisition activities by Indian corporates and the use of international debt financing for such transactions have propelled insolvency issues into the limelight. Concerns such as the enforceability of security in the various jurisdictions, limits on cross-border guarantees and funds transfer, as well as the robustness of the transaction financing structures have thus become more pertinent and are crucial in determining recovery value and assigning ratings,? he added.
The report first focuses on describing India?s insolvency regime and the various avenues through which secured and unsecured creditors can enforce their claims.
However, the agency views positively the legal reforms and self-help remedies introduced under various Indian laws, such as the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, which have been put in place to eradicate criticisms traditionally levelled against the country?s insolvency regime.