Early bankruptcy warning on Mca’s future political agenda

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Research topics proposed by the Department of Corporate Affairs show its policy priorities for the future, including predicting insolvency based on company-filed financial statements, integrating its corporate database with those of other regulators, and extending sustainability reporting to unlisted companies.

In a call for research proposals published last week, MCA said these ministry-funded projects will help improve regulatory oversight, provide early warning of corporate failures and simplify doing business.

One of the key research projects is the integration of the Department’s database of corporate regulatory filings with those of other regulators. “The integration of the MCA21 database and the databases of other departments and regulators will not only help avoid multiple filings but also strengthen enforcement,” the ministry said.

According to experts, reducing multiple filings will simplify compliance – something that should have been introduced sooner. “The same information is sent to various regulators as part of the regulatory filings, all of which are online. So why not make statutory filings available to all relevant regulators? The idea should be to help businesses,” explained Rajat Bose, a partner at Shardul Amarchand Mangaldas & Co., a law firm.

This move could help the government in other ways. Often, the diversion of funds raised as debt or proceeds from an IPO is linked to money laundering, tax evasion, etc. These are regulated by various laws such as the Companies Act, the PMLA or the Income Tax Act. Integrating the regulators’ database can help authorities quickly see the extent of defaults and violations

Another area of ​​research is the development of an early warning system for insolvency, which takes into account factors such as increasing loans to major shareholders (promoters) or group companies compared to the company’s debt, periodic amortization of loans, evergreening of loans, mismatches in asset-liability for financial companies and increased Pledge of promoter shares, the ministry said.

Asset-liability mismatches have been cited by experts as the reason for the severe financial strains that non-bank financial firms have faced in recent years. Non-bank lenders must incorporate as corporations.

Another research proposal that the Department intends to fund is to use the extensive database of financial statements available to the Department to develop a bankruptcy forecasting model.

Improving the ease of doing business is an important area of ​​research. Examination of the feasibility of establishing preliminary ruling bodies for the Companies Act, such as exist for income tax and GST, is another area the Department would like to explore. Preliminary ruling authorities issue opinions on the legislation applicable to a proposed transaction, a system designed to reduce litigation.

Corporate social goals, beyond generating profits for shareholders, are a key area the department is studying to generate insights. One of the research topics proposed by the ministry is the feasibility of extending Sebis Business Responsibility and Sustainability Reporting (BRSR) beyond listed companies and to include voluntary reporting.

The development of a corporate governance index is another area of ​​research. As well as measuring how companies are performing on this front, such an index could offer solutions to identified shortcomings, the ministry said.

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