siliconindia | | March 202019disorders etc. What is needed is for bankruptcy to lose its legal stigma so that individuals caught up in business failure could have another chance to succeed.Bankruptcy in Indian Society: The idea of bankruptcy commonly known as Yellow notice, IP (insolvent person) is a small creditor's night-mare. Also, the utter shaming of the individual with social ostracism for unpaid debts is common. The pro-tection of the law notwithstanding, bankruptcy is a shattering affair for the individual businessman. In the Indian social context, bankruptcy is the karmic fruit of moral turpitude by the businessman. The common Indian hears of the big scandals of Vijay Mallya or Nirav Modi and his instant reaction is that karma has hit back, that the businessman has paid for his excesses. The social costs of such high profile bankruptcies lead to the immediate result of reduced credit by the banks, and by a pro-longed series of investigations with the purported aim of `clamping down on excesses'. The stigma attached to bankruptcy affects the debtors who are filing for bankruptcy, by weigh-ing down on their moral conscience that they should repay their debts. It also operates through societal disap-proval and shaming after filing, when society holds debtors responsible for the wrong decisions that led to the situation. This stigma is burdensome and exacerbates debtors' vulnerabil-ity when it could provide a tool for debtors `fresh start' by rescheduling the debts.`Happy families are all alike; ev-ery unhappy family is unhappy in its own way'. This famous quote of Tolstoy dealt with intra-family re-lationships but can provide insights into the plight of the debtors seeking bankruptcy relief. Each comes with a unique story. Our contention is that bankruptcy must be seen in the en-trepreneur's context. In many a case, he is juggling a series of risks while struggling to make an economic profit. The risks may be bets on the economy, regulation, forex positions and customer growth. We may assess bankruptcy as a result of a series of bets going wrong, some well-placed and several others not so. In this read-ing of bankruptcy, it is the inherent business model of the entrepreneur, rather than moral ills, that have to be clamped down. In this process view of bankruptcy, it is wise for the creditors to assess the individual from the de-livered results on the business model rather than an ossified legal view of insolvency.Alternate View of Bankruptcy: We posit that there are two kinds of in-solvent persons, the entrepreneur who has a viable business model but tem-porarily not able to discharge the debt due to headwinds to the business and the second kind of entrepreneur who is a fraud in the disguise of an insol-vent. This person has milked the val-ue of the business by using ingenious approaches such as asset stripping, re-lated party transactions. and only the shell of the business exists at the time of bankruptcy. Our suggestion is that while today's law treats both the per-sons as equally insolvent before the law, we suggest that the creditors take a more lenient approach. It is important that we treat these bankrupt persons differently. The key idea is for all players to understand that bankruptcy is not the end of a business, but a process of discover-ing the true value of a business un-dergoing severe stress. The ideal ap-proach would be to look at both ends of the spectrum, namely, to assess if the business model could work if the stress in the economy, bad manage-ment, heavy debt is removed and as-sess the valuation of the business as a going concern- whether the fixed and operating assets are productive and have not been fraudulently stripped. Approaching bankruptcy with these twin lenses would be an enlightened view. By not focusing on the aspect of business model stress, an issue that small businesses are apt to face, and looking only at valuations, bankrupt-cy in India becomes a death spiral, with creditors chasing to be the first ones to get their dues instead of in-vesting time to think of a solution to revive the business altogether. The startup entrepreneur of today is more likely to be a technocrat with no family backing or fixed assets. He has an idea and a laptop and is mo-tivated. To create the right financial atmosphere for such entrepreneurs to succeed, legislations and banks must look at setting right the `strike wrong and pack off' bankruptcy procedures. We advocate that an enlightened ap-proach that treats bankruptcy as a business risk and allows the entre-preneur adequate breathing room is necessary. Bankruptcy in India becomes a death spiral, with creditors chasing to be the first ones to get their dues instead of investing time to think of a solution to revive the business altogetherProf. Meera Aranha
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