Realisation of 823 firms under IBC only 7% of admitted claims till January

The recovery under liquidation has been much lower compared to recovery under resolution plans by financial creditors
The realisation of nearly 823 companies that went in for liquidation under the Insolvency and Bankruptcy Code (IBC) was a meager 6.67 per cent of the admitted claims till January 2020.

Navrang Saini, whole-time member, Insolvency and Bankruptcy Board of India (IBBI), said of the 823 companies that went for liquidation, 571 were either in BIFR (Board for Industrial and Financial Reconstruction) or weren’t going concerns. Saini was speaking on the sidelines of a seminar on IBC in Kolkata, which was organised by the Confederation of Indian Industry (CII) on Friday.

The value of assets that were in BIFR or not going concerns, therefore, had already eroded. Between December 2019 and January 2020, 43 new companies went in for liquidation.

The recovery under liquidation has been much lower compared to recovery under resolution plans by financial creditors. Till January, financial creditors had recovered around 44.01 per cent. The low realisation under IBC has been a concern. However, P N Prasad, deputy managing director, commercial clients, State Bank of India (SBI), said that globally, like in India, about 80 per cent of companies undergoing bankruptcy resolution go for liquidation.

“However, value obtained from them is very high compared to India. In India, while the average realisation from liquidated assets is close to 15.5 per cent, globally it is close to 80-85 per cent,” he said. One of the reasons behind the low recovery is significant erosion of value in assets because of legacy issues, as cases were stuck at different debt recovery forums. 

Hence, an early initiation of the insolvency process would be beneficial for all stakeholders, Prasad added.

“In developed countries, there is a developed secondary market, where a number of private equity firms and venture capital firms look for opportunity to buy assets. They buy machinery and realise value. In India, too, once the ecosystem develops valuation will increase,” he further said. Citing the latest data, Saini said, 198 cases got approved for resolution till January. 

Of the nearly 3,455 companies admitted under IBC till January 31, about 265 were settled, while about 141 were withdrawn under Section 12A of IBC, which provides corporate debtors an opportunity to withdraw from the corporate insolvency resolution process (CIRP). The number of ongoing CIRPs is 2,028.

On the impact of IBC, Saini said, it had brought about behavioural change among companies, as the total non-performing assets (NPAs) in the banking sector had reduced from Rs 54 trillion in 2014 to Rs 18 trillion. About 10,000 cases were withdrawn before admission under IBC, he said. People wanted to settle cases before they were admitted. 

In terms of timebound resolution, one of the primary objectives of IBC, the average time taken for resolutions is 397 days, and 311 days for liquidation, which compared favourably when considered against Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi) or debts recovery tribunal (DRT). The time taken for resolution under Sarfaesi was 3-4 years, while in the case of DRTs it was 7-8 years.

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