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Bankruptcy's Shadow: ₹4 Trillion in Shady Deals Surface
24 Nov
Summary
- Pre-bankruptcy dubious transactions now amount to ₹4 trillion.
- Creditors aim to recover funds from questionable pre-insolvency deals.
- Legal clarity is needed for recovery from avoidance transactions.
Dubious pre-bankruptcy transactions are escalating, with creditor claims now nearing ₹4 trillion. This staggering amount, revealed by the insolvency regulator, mirrors the total recovered through bankruptcy courts since 2016. Banks are actively working to reverse questionable deals made by former executives before formal insolvency proceedings began.
The Insolvency and Bankruptcy Code mandates resolution professionals to scrutinize these transactions for potential recovery. However, recovery rates are proving challenging, with significant efforts yielding only a fraction of the claimed amounts. Legal experts note that assets are often dissipated by the time proceedings commence, complicating recovery efforts.
To enhance transparency, resolution professionals must now disclose such transactions in sale prospectuses. The government is also collaborating with the IBBI to refine methods for identifying and examining these deals. Recent Supreme Court clarity on distributing proceeds from avoidance transactions aims to resolve disputes between creditors and acquirers.
