IBC proceedings: 78 liquidation orders, a handful of resolutions

After more than a year of the Insolvency and Bankruptcy Code (IBC) proceedings, there have been more liquidation cases than resolution of the non-performing assets (NPA) accounts. According to a data from the Insolvency and Bankruptcy Board of India (IBBI), in the National Company Law Tribunal (NCLT), around 78 companies got liquidation orders since February 2017. 

In six cases, resolution plans have been approved at the NCLT, and in another four cases, resolution plans have been submitted to the tribunal. Around 921 cases are under the different stages of the IBC proceedings, according to the data from the IBBI. Among the big cases, in the Reserve Bank of India’s first list to the NCLT, the only case, which has seen resolution is Electrosteel Steels, as the NCLT has approved a Rs 53.20 billion plan by Vedanta.  

Other companies in which resolution has been approved include, Haldia Coke and Chemicals, Propel Valves, Divya Jyoti Sponge and Iron, Burn Standard, and Trinity Auto Components.   

“In case of the SMEs, there are no takers. However, we expect the government to come out with relaxation in norms for promoters bidding in the SMEs within one month,” said Mamta Binani, a resolution professional.

A large number of cases under liquidation are either small or medium enterprises. While there is hardly any interest among outside investors to invest in SMEs and MSMEs, Section 29A of the IBC bars existing promoters from bidding for their own companies. As a result, a significant number of firms are going in for liquidation. 

Meanwhile, the government has also proposed to make an exemption in the IBC, allowing promoters of SMEs to bid as a part of the resolution process. However, the change is yet to be notified. 

According to Mohit Chawla, a resolution professional, while the debt value of a firm is as high as Rs 100 billion in several cases, the liquidation value comes to around Rs 200-300 million, which effectively entails 

70-80 per cent haircut. “For resolution professionals, a major concern with the IBC now is the SMEs. There are a number of cases where we know that the company can be revived, but they are being forced into liquidation. The banks are taking a 70-80 per cent haircut,” Chawla said.

According to an executive of a public sector bank, with so many companies going for liquidation, banks are also wary of taking the SMEs into the NCLT. Instead, they are opting for a one-time settlement, which is a better deal for the banks. “In case of the SMEs, it is difficult 

to find a new promoter. So if it found that the promoter is not a willful defaulter or has not diverted funds, there should be some flexibility, which will bring in more competition,” said R K Takkar, MD and CEO, UCO Bank.