Insolvency resolution in India sees second consecutive quarter of under-performance

Insolvency resolution in India saw a second consecutive quarter of underperformance as the number of cases admitted to the corporate insolvency resolution process (CIRP) fell 86% year-on-year in July-September.
The National Company Law Tribunal (NCLT) admitted 80 cases during the second quarter of this financial year, one less than in the previous quarter and substantially lower than the 588 admitted a year ago, data released by the Insolvency and Bankruptcy Board of India showed.

The data was along expected lines as the suspension of sections 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC) remained in place through the second quarter.

"The drop in number of admissions in the quarter of July-September, is perhaps also on account of limitations of virtual hearings and the NCLT and the ecosystem adapting to the same," said Misha, partner at Shardul Amarchand Mangaldas & Co, adding that the suspension would have definitely put a stop to operational creditors (OCs) initiating CIRPs.

During the quarter, 22 admitted cases yielded an approved resolution plan against 33 last year, bringing the total number of CIRPs ending with resolution plans to 277 out of the total 4,008 cases admitted since 2016.

On the other hand, 68 CIRPs ended by orders for liquidation during the second quarter, taking the total number of cases going into liquidation to 1,025 as of September 30.

While 10 cases were closed on appeal, review or settled, 12 CIRPs were withdrawn during the period.

Therefore, 13% of the total 2,066 closed CIRPs ended with a successful resolution plan while the figure stood at nearly 50% for cases ending in liquidation.

In terms of value, the realisable value of the assets of the 277 corporate debtors rescued, when they entered the CIRP, was only Rs 1.02 lakh crore, although they owed Rs 4.89 lakh crore to creditors.

The resolution plans recovered Rs 1.97 lakh crore, about 193% of the realisable value, making the IBC the best option for debt recovery. However, in comparison to their claims, financial creditors recovered 43% of dues through successful resolution plans.

"Time taken in Insolvency processes has increased substantially," said Rajiv Chandak, partner at Deloitte adding, "It is also inversely proportional to value recovered from the resolution of stressed assets."

The average time taken from the insolvency commencement date till approval of resolution plan was 433 days, according to the data.

As stated by finance minister Nirmala Sitharaman in Parliament, the benefits of the IBC are largely seen in resolutions that take place outside the CIRP.

According to the data, 14,484 applications for CIRP with underlying defaults amounting to Rs 5.15 lakh crore were resolved before being admitted.