The Aryavarth Express
Agency (New Delhi): The Insolvency and Bankruptcy Code (IBC), enacted in 2016, aimed to streamline the resolution of insolvency cases and enhance recoveries for creditors. However, a recent report reveals that significant challenges remain, including low resolution rates and substantial losses for financial creditors.
In the fiscal year ending March 31, 2024, 987 cases were admitted into the insolvency process, a 22% decline from the 1,263 cases in the previous year, according to a report by Kotak Institutional Equities. The cases primarily involved the manufacturing sector (38%), real estate (21%), construction (12%), and retail/wholesale trade (10%).
Kotak analysts MB Mahesh and Nischint Chawathe noted that while corporate India is in relatively good health due to deleveraging, legacy stress continues to impact the number of cases and outstanding claims.
Since the IBC’s implementation, approximately Rs 10.5 lakh crore of debt has been resolved. However, creditors have faced haircuts averaging 68% on admitted claims. Many cases end in liquidation rather than resolution, often because companies enter the insolvency process with already weak financials and deteriorated assets, deterring potential buyers.
The initial IBC framework required settlements within 180 days, with a possible 90-day extension. This timeline was later extended to 330 days. Despite these changes, the average time for corporate insolvency resolution processes (CIRPs) has increased. By March 2024, the average duration was 679 days, up from 614 days in March 2023 and 550 days in June 2022.
Liquidation remains the dominant outcome for insolvency cases. Of the 5,640 cases closed by March 2024, only 17% were resolved, while 45% went into liquidation. Analysts suggest this trend will persist as many ongoing cases have already exceeded significant time thresholds: 68% have been open for over 270 days, and 10% for more than 180 days.
The report also highlights that a third of liquidations occurred due to the absence of resolution plans. Many cases involved companies that were already defunct or with the Board for Industrial and Financial Reconstruction (BIFR).
Uday Kotak, founder of Kotak Mahindra Bank, identified delays in admitting cases to the National Company Law Tribunal (NCLT) and the time taken for proceedings as primary reasons for the low resolution rates. He emphasized that speeding up these processes could improve recovery percentages.
Despite these challenges, Kotak acknowledged that the IBC has increased creditor control and corporate accountability.
