Turnaround specialists can help turn failing firms around if legal hazards are kept out of their way

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.The laws, however, do not view such professionals merely as external consultants.

The Companies Act of 2013 features an array of definitions that scare turnaround specialists: ‘control,’ which includes control of management or policy decisions; the term ‘key managerial personnel’ with its various connotations; ‘manager,’ denoting any individual directing the company’s affairs irrespective of job title; and ‘officer,’ which extends to individuals whose directives the board obeys.These definitions act as impediments to the engagement of turnaround specialists. A nuanced interpretation of the terms ‘manager’ or ‘officer,’ coupled with the definition of ‘control’ place designations such as ‘turnaround manager’ or