Clear pathways for turnaround artists to rescue firms in distress

Specialists would be readier to take on the challenge if doing so did not entail significant legal risks

- DEVENDRA MEHTA

Before the enactment of India's Insolvency and Bankruptcy Code (IBC), there was very little talk of turnaround professionals.

Yet, they were deployed in many companies, not as external consultants, but as individual key managerial personnel (KMP). The IBC pivoted the paradigm towards resolving corporate distress via the National Company Law Tribunal (NCLT). The IBC aims to redress only the capital structure, leaving operational problems unaddressed. Delays in adjudication are another big problem; they accelerate value erosion: key customers defect, accredited vendors switch, employee churn is high, cannibalization of equipment is rampant, maintenance is absent and parts of plant and machinery have to be scrapped.

Thus, forward-thinking boards now seek turnaround specialists. Regrettably, India’s legal architecture thwarts such engagements. Several modern practitioners eschew the immersive role of a KMP, preferring instead to serve as independent consultants to shield themselves from the company’s prior improprieties.