Read the given passage and answer the following question based on the passage. On Wednesday, the government announced it would amend the 2016 insolven...
Question
Read the given passage and answer the following question based on the passage.
On Wednesday, the government announced it would amend the 2016 insolvency law, a landmark reform from Prime Minister Narendra Modi’s first term. Investors are expected to welcome this move.
The law was facing frustrating legal delays and unusual judgments, risking deterring global investors from a $200-billion-plus bad-debt cleanup. The tipping point was a recent insolvency tribunal ruling in the $6 billion sale of Essar Steel India Ltd. to ArcelorMittal, where judges decided that secured creditors would not have priority over unsecured creditors and suppliers.
This ruling would have cut the assured 92% recovery rate for financial lenders down to 61%. Although the State Bank of India and other lenders have appealed this decision in the Supreme Court, the government's decision to intervene is timely. Had the Supreme Court upheld the tribunal’s verdict—citing unclear laws on how sale proceeds should be divided—banks would have faced significant losses, increased bad-loan provisions, and more debtors pushed into liquidation, causing unnecessary job losses. The government had to act before the July 22 court hearing.
The proposed amendment aims to "fill critical gaps in the corporate insolvency resolution process" by explicitly giving creditors’ committees the authority to distribute proceeds. This should restore rationality to a process that would have forced financial creditors to share sale proceeds equally with suppliers and unsecured lenders.
Regarding urgency, delays caused by large business families unwilling to lose assets have extended bad-debt resolutions like Essar’s to over 600 days, while the goal was 270 days. The Modi government now wants the timeline to continue running even during appeals, with cases admitted and resolved within 330 days.
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