At Rs 2.5 trillion, IBC recoveries one-third of admitted claims

Until December 31 last year, 457 companies were resolved under IBC: Govt tells Parliament.

Since its inception six years ago, resolution plans under the Insolvency and Bankruptcy Code (IBC) have yielded a realisable value of Rs 2.5 trillion against total admitted claims of Rs 7.54 trillion, as on December 31, 2021, resulting in a recovery of 33.16 per cent for the financial creditors (FCs).

Rao Inderjit Singh, Minister of State in the Ministry of Corporate Affairs (MCA), in a written response in Parliament on Monday said, as of December 31, 2021, 457 companies have been resolved under the code so far. “The resolution plans for 444 companies, for which data is available, have yielded a realisable value of Rs 2.5 trillion for FCs against total admitted claims of Rs 7.54 trillion,” he said.

The minister was replying to a question on whether the MCA had taken cognisance of bankruptcy tribunals taking note of disproportionate haircuts being taken by lenders for companies resolved under IBC.

Realisation by creditors through the corporate insolvency resolution process (CIRP) under the IBC is market-driven and is inter-alia dependent on quality of assets at the time of its resolution, the minister said in his response.

In the past, there have been instances where the recovery rate of financial creditors from some resolution plans had raised a lot of eyebrows, given how low they were. Last year, TwinStar Technologies’ resolution plan for the Videocon Group, which offered only 4.15 per cent of the outstanding claim of creditors, came under heavy criticism. The NCLT, in this matter, had even suggested both the committee of creditors and the successful applicant that the pay-out be raised.

Ashvin Parekh, MD, Ashvin Parekh Advisory Services, said, “The recovery rate should be viewed in the context that the assets are fairly dated, their value has deteriorated over time, and banks have fully provided for them. In this backdrop, a 33 per cent recovery rate is fairly decent. Also, other modes of recovery — be that from DRTs or Sarfaesi Act — were not as effective.”

However, the IBC will become more effective if the time period between the referral of stressed assets to bankruptcy tribunals and recovery from them is reduced. We have to realise that the economy was not in good shape for many years, hence that would have a bearing on the extent of recovery from distressed assets. But, as the economy gathers steam, the recovery from such assets will pick up pace, Parekh added.

The economic survey of 2021-22 notes that as of September 2021, the IBC has rescued 421 corporate debtors (CDs) through resolution plans and referred 1,419 CDs for liquidation.  While the rescued CDs had assets valued at Rs 1.48 trillion when they entered CIRP, and debt of Rs 7.94 trillion, the resolution plans realised Rs 2.55 trillion, which is more than 172 per cent of the realisable value of these CDs. “Though recovery is incidental under the Code, the FCs recovered 32.11 per cent of their claims, which reflects the extent of value erosion by the time the CDs entered CIRP, yet it is the highest among all options available to creditors for recovery,” the survey said.

Ajay Shaw, partner, DSK Legal, said, “Lenders do their own analysis on the various recovery options available on the basis of the nature of business and after assessing the timeframe required for recovery. Recovery through the IBC has been preferred by lenders these days, particularly, for companies that have tangible value (example steel, manufacturing) because IBC is a formal and composite process which requires to be completed in a time-bound manner with no multiplicity of proceeding against the borrower.”