Less than six percent of the total cases filed under India’s four-year-old bankruptcy code have found resolution till the end of March 2020, the latest data from the Insolvency and Bankruptcy Board of India (IBBI) shows.
A total of 3,774 cases or corporate insolvency resolution processes (CIRPs) have been filed since the Insolvency and Bankruptcy Code (IBC) came into force on December 1, 2016. Of these, about 43 percent have closed, by way of resolution, liquidation or other means, total lying 1,604 cases. The remaining 57 percent or 2,170 cases are still ongoing, many of which have exceeded the 330-day maximum time limit set under the bankruptcy laws.
Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies. In total, 312 cases have been closed on appeal or review or settled; 157 have been withdrawn; 914 have ended in orders for liquidation and most importantly- 221 have ended in approval of resolution plans.
What is also important to note is that over 72 percent of the CIRPs ending in liquidation (637 out of 879 of which data is available as per IBBI) were earlier defunct and under BIFR, or the Board for Industrial and Financial Reconstruction. This means that for 72 percent of the companies liquidated, most had little or no economic value left when they were brought under the CIRP, and therefore the winding up of the business has to be seen in context.
Bankers say the larger worry is for smaller cases where no resolution plans are received, and the time lost in litigation also results in monetary losses for all involved.
“I think the high percentage of liquidations you see is the combined result of legacy defunct or zombie cases, economic slowdown and in a relatively small way, 29A (which bars promoters of defaulting companies from participating in the CIRP). Absence of clarity on some aspects of the IBC process such as the “fresh slate” principle and impact of criminal proceedings till recently may have also contributed to this,” explained Dhananjay Kumar, a partner in the Restructuring and Insolvency Group at Cyril Amarchand Mangaldas.
Recoveries under the bankruptcy code have averaged 44 percent across all classes of creditors- including financial and operational creditors. Financial creditors have recovered almost 46 percent of their money in comparison to the claims they made. If compared with the liquidation value, financial creditors on average have recovered 183 percent of the money under resolution plans.
Overall creditors had admitted claims of Rs 4.13 lakh crores in the 221 cases that have been resolved under IBC. Against this, almost Rs 1.84 lakh crore has been recovered so far, amount to a 44 percent recovery rate overall.
One of the key highlights of this IBC process is ensuring a time-bound resolution for all stakeholders, which helps minimize any erosion in value. Currently, IBC laws permit a maximum of 330 days for resolution, after which the borrower is forced into liquidating the company. This included 180 days normal time permitted and an additional 90 days including any litigation-related delays.
However, data from IBBI shows that the 221 CIRPs which yielded resolution took on an average 375 days for conclusion under the code, exceeding the maximum 330 days permitted. As for the cases which ended in liquidations, these 914 CIRPs on average took 309 days for the conclusion.
As far as the status of the 12 large defaulters frost identified by RBI is concerned, the latest data shows that creditors have recovered Rs 1.36 lakh crores from 8 of these 12 cases which have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent in the case of Jaypee Infratech.
The recovery in absolute terms has been the highest ever in the case of Essar Steel, where lenders recovered Rs 41,018 crores against claims of Rs 49,473 crores, yielding a recovery of 82.91 percent.