Liquidate the Liquidators

JOURNALISTS often repeat the old joke that India has many sick industries but very few sick industrialists. There are cases where it is so profitable to run a sick industry that the owner positively radiates good health. As long as the unit. is profitable, the owner will typically complain about the unreasonable demands of his rascally workers. But let the unit fall sick and the owner will suddenly fall in love with his workers and demand endless subsidies, soft loans and write-offs to prevent his beloved workers from becoming unemployed. The Central and state governments are usually suckers enough to dole out the cash, left-wing journalists and politicians will cheer the charade, and the smiling owners will siphon off part of the extra cash, marvelling at God’s mysterious ways in saving them through socialism.

Recently I came across some starting figures on the time taken to liquidate companies under court orders, and these oblige me to revise the old joke about sick industries and healthy industrialists. The data show that it takes decades \to wind up companies. Dozens have taken over 20 years to be wound up, and three companies in the Calcutta High Court have been under liquidation for – take a deep breath – more than 50 years. In these cases, clearly, the healthy industrialists must long have died, but their sick units live on.

This is not really a joking matter. Units in liquidation have land worth thousands of crores of rupees, which lie idle while the official liquidators appointed by courts twiddle their thumbs. Machinery in these units rusts and becomes useless, so that delay imposes appalling costs on the economy. In some cases, the owners connive with the liquidator’s staff to steal the machinery (which is mortgaged to creditors and is really theirs by right). By the time liquidation proceedings end, the assets are often stripped bare.

LEGAL HASSLES:

Even if the official liquidator is honest, he has neither the staff nor resources to chase crooked company directors or various debtors, or cope with the enormous paperwork and legal hassles involved. The liquidator is allowed to hire temporary staff at the company’s expense to assist him. But the jobs of these temporary hands will end the moment the company is liquidated. It is no surprise, therefore, that staff supposedly appointed to expedite liquidation try to ensure that it never happens.

Who suffers ? The workers and creditors. The workers typically have not been paid their legal dues on closure, since the company is bankrupt. They can get their dues only after liquidation yields some cash for all claimants. In Ahmedabad alone, textile workers are owed over Rs. 80 crore In the whole country, workers’ dues run into many hundreds of crores. Creditors, like banks and public financial institutions, are owed thousands of crores, but cannot get their dues because of slow liquidation. This has driven many banks deep into the red.

The main resistance to liquidation comes from owners. The BIFR has issued winding up order in several cases but the owner invariably go on appeal to stall proceedings. Delay gives then time to strip more assets, am keeps alive the faint chance that the state government may be per suaded to inject some fresh cash into the unit for pressuring the government to pump in some more cash, or (even better) nationalise the units.

FINANCIAL STRAITS: Today, that is just not on. The Central and state governments are in dire financial straits, and have no cash for rescues. The same is true of banks, especially since the new banking norms make it impossible to continue with the old fiction that loans to terminally sick units are good debts.

As long as there is a chance of reviving a unit, it is against the workers’ interest to have quick liquidation. But the moment revival is ruled out, it is in the interest of workers to have as quick a liquidation as possible. India is littered with hundreds of closed units where the workers have not received their termination dues for a decade. They have been kept waiting first by their union leadership and now by the slow liquidation procedure.

Today some trade union leaders have recognised where their true enemy lies. Mr Arvind Buch, head of the Textile Labour Association of Ahmedabad, has called for a “liquidation of the liquidators.” He has cooperated with the state government in devising a package where sick textile mills will be nationalised, not for revival but just to expedite liquidation. The private owners have resisted liquidation, but after nationalisation the new owner (the state government) will not.

A Bill has been introduced in Parliament to amend the Companies Act and expedite liquidation. It also envisages the development of a cadre of professional liquidators and special courts. However, many experts feel that the changes do not go remotely far enough, and that liquidation will still take decades. The bill needs more teeth. Meanwhile other state governments and trade unions need to learn from the new experiment in Gujarat. Nationalisation for the specific purpose of rapid liquidation may well be the best way to meet the dues of workers and creditors, and to reactivate land and machinery that has been forced into idleness for years.

What do you think?