Creditors lose more than Rs 5 lakh crore as 950 insolvent companies go into liquidation

Could the Insolvency and Bankruptcy Code (IBC) have saved thousands of crores of banks’ money if it had worked more efficiently and hundreds of companies could have been saved from going into liquidation?

Data available with the Insolvency and Bankruptcy Board of India (IBBI) shows that if some of those companies, which have been sent for liquidation, had found successful resolution applicants, banks could have recovered at least around Rs 34,000 crore.

Data released by the Insolvency and Bankruptcy Board of India (IBBI) shows that close to 1,000 (955 to be precise) companies have been ordered to be liquidated by the National Company Law Tribunal as per the IBC proceedings as of 30 June 2020. Out of these 955 cases, only 219 companies had received one or more resolution applications during the Corporate Insolvency Resolution Process (CIRP). If we simply add the highest value offered by the resolution applicant(s) to these companies at the CIRP stage, lenders (both financial and operational) could have recovered a total Rs 34,364 crore against total admitted claims of Rs 2.72 lakh crore (excluding the claims in cases where no resolution plan was submitted) and total liquidation value of Rs 22,500 crore.

The total claims submitted in all the cases of liquidation were Rs 5.47 lakh crore of which financial creditors’ claims alone were Rs 4.99 lakh crore. The total liquidation value of all liquidated cases were a mere Rs 40,350 crore.

A majority of the cases in liquidation were defunct at the time of initiation of Corporate Insolvency Resolution Process (CIRP), but 264 cases were such where the corporate debtor was a going concern at the time of start of CIRP. Of the 264 functional companies which have been liquidated, only 107 receive any resolution plans.  If we simply add the highest value offered by the resolution applicant(s) to these companies, the total  amount that the lenders could have recovered is Rs 21,334 crore against total admitted claims of Rs 1,17,000 crore. The total liquidation value these companies command is around Rs 13,393 crore.

Of those companies which were defunct at the time of initiation of CIRP process, 112 had seen one or more resolution applications. If we add the highest value of offered by applicants in these cases, lenders could have recovered Rs 13,029 crore.

Theoretically, even if at the time of liquidation, the creditors could realize asset value worth the liquidation value, lenders could still have recovered Rs 12,000 crore more if they had agreed to the offer made by resolution applicants. More than Rs 12,000 crore, it could have saved thousands of jobs.

Of course, liquidators in many of these companies under liquidation are trying to sell them as going concern, but so far only three companies – Emmanuel Engineering Pvt Ltd, KTC Food Pvt Ltd and Southern Online Bio Technologies – have been sold as going concern under the liquidation process. The liquidators in these three cases were able to realize Rs 76 crore against liquidation value of Rs 57 crore.

Till 30 June 2020, as many as 84 liquidation cases have been closed where the total realization was Rs 192 crore against the liquidation value of Rs 180 crore.

Liquidated companies which attracted maximum offer during CIRP