Is IBC losing its sting? Recovery rate drops to 39%
Is the Insolvency and Bankruptcy Code (IBC) losing its sting? After the recent controversies on giving backdoor entry to ‘unscrupulous’ promoters through one-time-settlement, and undue delay tactics by some of the promoters and unsuccessful resolution applicants – remember NBCC’s last minute attempt to derail the Jaypee Infratech resolution – poor recovery from resolutions during the January-March 21 brings more worries for the insolvency stakeholders.
During the January-March quarter, 29 insolvency cases were successfully resolved through IBC recovering only Rs 4,600 core out of a total claims of Rs 17,389 crore made by bankers. The recovery rate during the quarter was a paltry 26.41%.
Remember, this kind of recoveries were achieved pre-IBC. While some would argue this could just be one bad quarter, the overall picture doesn’t look bright either. So far this 31 March 2021, of the total 348 cases resolved (of the 4,326 companies under IBC), bankers could recover only 39% of their total claims – which means on an average bankers took 60% hair cut.
The recovery rate for vendors and suppliers is even worse.
According to data released by the Insolvency and Bankruptcy Board of India (IBBI), bank and other financial institutions recovered a total of Rs 2 lakh crore from these 348 cases of insolvencies which were successfully resolved. The total claims made by banks in these cases were Rs 5.16 lakh crore.
Financial creditors of SEL Manufacturing Company Ltd, the largest case in terms money owed to banks that got resolved during the quarter, could recover only 15%, or Rs 1089 crore , of the total creditors’ claims of Rs 7,242 crore.
So far 1,277 corporate debtors undergoing insolvency proceedings have been gone into liquidation. In the January-March quarter, 149 companies were liquidated against 29 cases which saw resolution.
Of the 1,277 CDs ending up with orders for liquidation, data in respect of 1272 CDs are available. These had an aggregate claim of Rs 6.47 lakh crore. However, they had assets, on the ground, valued only at Rs 0.46 lakh crore. Till December 2020, 240 CDs have been completely liquidated.
Total average time taken to resolve a case has now crossed 400 days against the stipulated time of 330 days. Even in case of liquidation, the average time taken is 351 days.
Till March 2021, 17,305 applications for initiation of CIRPs of CDs having underlying default of Rs 5,33,145 crore were resolved before their admission.
Also Read: Resolution plan binding on Central & state govts, local authorities, says Supreme Court
