Insolvency Code - Resolution Of NPAs Vis-À-Vis Defaulting Promoters

This article has been co-authored by the team of LexCounsel in collaboration with Ms. Sangeeta Gulati, CFO, Kanodia Technoplast Ltd.

Massive expansion and investments, primarily funded through bank loans (despite a weak promoters' equity base), has given rise to companies which have overleveraged their balance sheets. Coupled with the economic slow-down, industry conditions and global financial crisis in the past, this led to these companies becoming financially stressed. While, certain companies were able to sustain themselves through swapping loans, many have already reached a point where they have financially broken down. Bhushan Steel, Lanco, Essar Steel, Kingfisher, Monnet Ispat and Alok Industries, are just a few reported examples of such broken down stories.