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The Insolvency and Bankruptcy Code (IBC) was introduced by the Narendra Modi government in December 2016 to expeditiously resolve claims involving insolvent companies in a bid to tackle the bad loan problem plaguing Indias banking system. Two years on, even as it continues to evolve, the legal reform has emerged largely successful. However, it may have had an unintended outcome: shutdown of viable businesses of indebted firms.
A new study by National Institute of Public Finance and Policys Pratik Datta argues that such value destruction of profitable businesses is due to certain design flaws in the law. For instance, any insolvency resolution plan under the law relies on the vote of financial creditors, whos…
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