https://i0.wp.com/www.kunwersachdev.com/wp-content/uploads/DSC03906_Original.jpeg?fit=1600%2C1067&ssl=1 1067 1600 Kunwer Sachdev https://www.kunwersachdev.com/wp-content/uploads/2023/02/Kunwer-Sachdev-300x154.png Kunwer Sachdev2023-07-17 03:16:142023-09-10 07:48:46How Entrepreneurs are suffering for personal guarantee under the IBC Law
Personal Guarantee under the IBC and How Entrepreneurs are suffering from personal guarantee under the IBC Law
How Entrepreneurs are suffering for personal guarantee under the IBC Law is a very sensitive subject as the personal guarantee is given by the entrepreneurs against the loan taken by the company, so once the company is admitted into the NCLT, then it should be seized to exist as the loan is taken against the company and for the company purposes unless it is proved that the money taken for the company is used for personal use. Most of the companies admitted into the insolvency process are declared fraud by the banks, so banks have filed cases against those companies. The entrepreneurs are suffering to answer these agencies about what happened ten or 15 years back, and entrepreneurs don’t have any choice. Even though the Supreme Court of India has struck down the Fraud account declaration by the bankers, it is a big relief for the entrepreneurs as their reputation is all at stake by declaring Fraud accounts by the banks. The banks do not take back all the legal cases filed against the entrepreneurs even after the Supreme Court of India declaration, as they will fight against us till our death.ttps://timesofindia.indiatimes.com/business/india-business/ibc-good-reform-but-hits-entrepreneurship/articleshow/91425000.cms
Entrepreneurs are kept away during the Valuation of the Company as it’s a secret.
After taking the company from the entrepreneur, once the company is admitted into the insolvency process, there is no right of an entrepreneur or now-called guarantor to be involved while valuation is happening as the company is left to new people who take over the company assets of all kinds, including IPR, Property, Equipment and machinery etc. and try to evaluate without the knowledge of guarantor.https://samistilegal.in/personal-guarantor-insolvency-under-ibc/
In IBC, there is a provision for the valuation of the assets but without the knowledge of an entrepreneur or guarantor, which is against the principle of natural justice.
What is the purpose of that valuation if that is to be done and has no relevance to the auction price? When the asset is sold, the valuation has no meaning because most companies that go for insolvency get 5% to 20% or may be lower than the loan amount due to the companies.
The Forensic audit people had not asked us questions when doing forensic audits. Now, we are shown those forensic audit reports when all our employees dealing with those matters have left, and we are being penalized. Forensic audit reports are also hidden from us, which is another big challenge.https://www.kunwersachdev.com/news/ibbi-a-law-with-good-intentions-that-is-resulting-in-bad-outcomes-for-entrepreneurs-and-make-in-india-campaign/02/
Valuation Process under the IBC
There are two types of valuations done under the IBC: if the company is healthy, then the valuation is based on the running value of the company, and the other is liquidation value, which is the lowest one can get in a worst-case scenario. I take the case of Su-kam; it was valued at Rs300 Crore as running company value. The Liquidation value was 150Cr. People will be shocked to learn that the company was sold at 49Cr. The properties owned by Su-kam were worth 150 Cr, along with the machinery installed in the factories as we built world-class factories and world-class equipment, as there were two built-up properties in Gurgaon Udyog Vihar and four big running factories in Baddi Himachal Pradesh. I made all the properties from ground zero, and they were sold to some company at the time of the Corona period, and the person paid the entire amount after two years. Until then, litigation was going on, so the other party became the owner in the Corona period by giving bank guarantees. When the money was paid, the property was booming in India. Banks got just 8 Cr as the rest of the money was gone to pay the CIRP cost, which is the debts created for running the company during the CIRP period, like employees’ wages and suppliers’ payments, which were unpaid.
In contrast, the banks ran the company, so the credit taken to run the company and the legal and big four expenses to run the company became the major expenditure during the period the company remained unsold. My question is, who is responsible for this mess? Banks lost their money, entrepreneurs were ruined, employees and suppliers were destroyed, and who benefitted from this process? Ultimately, banks are after the entrepreneurs to revoke the personal guarantee to destroy them further. Where do we entrepreneurs stand in this case?
Then what is the use of those valuations the moment IBC kicks in? Bankers start squeezing the already debited company by slapping all kinds of valuation running by big firms’ legal charges and COC meetings in three-star or 5-star hotels. All sorts of charges are slapped on the already stressed company. How can a stressed company take the burden of all such expenses? Then, they cannot run the company for more than one year. In that one year, sales have dropped, service is not given to the dealers and customers, and no advertising or service budget is spent and credit from the suppliers again on the reputation of an entrepreneur. Salaries are not paid on time, and one day, they get the order from the NCLT court to close the company, and no one can do anything against the banks or RP running the company to close it down. One day, sell the company at a throwaway price and ask the entrepreneur for the rest, knowing he can’t pay that.
When an entrepreneur is running the company, he is very much taking care of the brand value by keeping the brand and the quality of products or services given by the company, but all of a sudden, he is asked to step aside, and the valuation of the company is lost in one stroke. After that, the company, which is stressed, need investment to run it properly, and if banks don’t invest money and put all kinds of expenditure like fees of the Big Four’s people who come and oversee the running of the company, legal expenses, all legal and regulatory expenses which a normal company will not do in day to day running. Once the company is closed down, the preference is to fight legal cases rather than keep funds for employees and services. When I complained to the IBBI board against the Resolution professional and Liquidator, both were found guilty and barred from practising for two years. However, what is my Kasoor for which I got penalized and still fighting the banks to save my life?
Let us compare the same situation where an investor buys the company. He will treat the company and the entrepreneur in a very balanced way, keep the entrepreneur on the board, give him money in the next 3 to 5 years, and treat him like an asset, as the investor knows that upsetting the entrepreneur or the owner can be very harmful for the valuation of the company in present terms and future terms.
In IBC, the entrepreneur or the owner is treated like a criminal during the company’s insolvency process. All kinds of legal cases are slapped on them, resulting in depression. A few try to commit suicide as society thinks badly about them. The news and social media all talk about them as people who made big losses to the public money, and no one talks about them that they created any value and everyone is a thief and dacoit. They must be behind bars, and their families and a few employees are also behind bars or fighting cases endlessly. Any youngster who has seen them suffering wouldn’t like to be an entrepreneur in future.
These people were the perfect role models for these youngsters, but today, they are seen in a bad light.
Maybe some entrepreneurs would have done wrong with the intention, but most of them slogged to create an enterprise, and certain people made it very big.
The brands created by them are valued at almost pennies.
Another factor is the interest burden by the banks, for which the clock continues and never stops. Once you have taken the company from the entrepreneur, the clock should stop there only, or the clock should be put on the company and not on the guarantor, as the guarantor can only pay interest if the company is in his control. The businesses often lost, and the people running them became profitable after a certain period. The loan service is only possible if I have control of the company. Otherwise, the person who runs the corporate debtor should be responsible. There is no means for the entrepreneurs to service the loan or interest accrued. Probably today, the loan amount of 250 Cr taken by the Su-kam is valued at more than 550Cr, and the clock is still running every day for me to pay back.
When building and creating products for Su-kam and running the company, I did only one thing: Su-kam. Even though my family was second to me, now I realize my mistake, and I made a lot of right and wrong decisions in life. My philosophy of life is Decisions are not right and wrong, but the outcome is right and wrong. So, making decisions in life is very important, so I still live with this philosophy of life.
I have completed 60 years and don’t think these cases will be resolved until my death. No help from any quarter as you are tagged as Looser and Failure. Still, I have some good friends who stood with me thick and thin, and few left, which is the normal way of life. In India, once you fail like this, there is no second chance, which was the purpose of this law to take the companies from the promoters who cannot run the companies profitably and give a lease of life to the promoters. Can this law and the environment created around it justify the end? My idea for writing my story is to write my side; the rest is in the hands of the people reading my side to decide. In India, the bad loans story is a one-sided affair where it’s always written that entrepreneurs brought losses to the banks, and they are the bad guys. I hope to write my views on How Entrepreneurs suffer for personal guarantees under the IBC Law.
I’m sure I have become a better man and am improving many things. As you are reading, this blog was written by myself without anyone’s help and was posted on WordPress by myself.
I hope to shed light on How Entrepreneurs suffer for personal guarantees under the IBC Law.