No relationship between size of debt and delay in resolution under IBC, says IBBI study
Inordinate delay in the resolution process is one of the biggest challenges that the insolvency and bankruptcy regime in the country face. There are various reasons that could be attributed to the delay, but one common perception among many stakeholders including the resolution professionals is that the bigger the size of the debt is, the more time it takes to find a resolution.
A research and survey done on behalf of Insolvency and Bankruptcy Board of India (IBBI), shows that 55% of 431 resolution professionals who participated in the survey, believe bigger the debt size, more time it takes to complete the CIRP, whereas 40% say that there is no relation between the two and cause of delays is a combination of many variables put together.
(As per the IBBI data, the total number of IPs who handled at least one case is 1149. A total of 431 resolution professionals participated in the survey)
But is there indeed a positive correlation between size of the debt and time taken in the resolution? A study by Neeti Shikha, head, Centre for Insolvency and Bankruptcy, Indian Institute of Corporate Affairs (IICA), and Urvashi Shahi, senior research fellow at IICA, found that there is no relationship between the two.
The two conducted a regression analysis, where the amount of claims was the explanatory variable (independent variable) and number of days taken to complete the process as predictor variable (dependent variable). “The result of the regression suggested that R square is 13.49%, which means that only around 13.5% of the variation in number of days taken to finish the process is explained by the size of the CD,” says the study.
An R square of closer to 100% means a better relationship between the two – debt size and the number of days taken in resolving the case. The study, therefore, suggests that contrary to the common perception, delay in resolution under IBC has not much to do with the size of the debt.
The study by Niti Sikha and Urvashi Shahi finds that the main reasons for delay are inadequate capacity of NCLT, difficulty in marketing stressed assets, non-cooperation by corporate debtor and improper documentation model of companies.
The study pointed out that admission of application for CIRP takes much longer than the prescribed timeline, and it is among the major cause of delay. The study also found that 27.4% of the total delay is caused in taking approvals of the resolution plan from CoC. Most of the corporate debtors also get extensions at this stage, says the study.
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