Two years of IBC: Resolution for just 34 defaulters out of 91 cases

Over 977 companies have been admitted under the Corporate Insolvency and Resolution Process (CIRP) since the implementation of the Insolvency and Bankruptcy Code (IBC) in 2016. During the April-June quarter 244 corporate defaulters were freshly admitted under the CIRP and around 716 corporate defaulters are still undergoing the process as of date. 

About 91 of the IBC cases filed against corporate debtors were closed upon ‘appeal and review’ and only 34 cases have seen successful resolutions as of the end of June under the CIRP, according to data from the Insolvency Bankruptcy Board of India (IBBI). 

During the January to March quarter, only 22 cases had yielded a resolution under the CIRP and between April and June resolutions for another 12 CIRPs were closed. These include companies such as Kalpataru Alloys, Electrosteel Steels, Bhushan Steel, Orissa Manganese and Minerals, Wig Associates amongst others. 

While the total value of the claims against these companies, filed by lenders, stands at Rs 762.4 billion, the combined liquidation value was pegged at 23.4 per cent or Rs 180.8 billion. Financial creditors realised 56.25 per cent of their outstanding dues in comparison to their claims. 

That is, on total outstanding loans worth Rs 762.4 billion the lenders realised Rs 428.9 billion in total. 

One major issue in the implementation of the IBC and CIRP is that the strict prescribed time-lines for finding resolutions has not been adhered to, uniformly across cases. This, experts say, is the biggest hindrance in the effective implementation of the bankruptcy law. 

The table above shows the compliance record of pending cases against corporate defaulters with respect to the 180 day and 270  day (extended) time-line as prescribed in the IBC rules and regulations. Around 186 companies have been undergoing CIRP for over 270 days, while 183  have asked for a 90 day extension on the standard 180-day deadline for bringing out a resolution plan with an appropriate buyer. 

Of the 977 corporate defaulters taken to the National Company Law Tribunal(s) (NCLT) for IBC proceedings, 136 companies have been ordered for liquidation as of the end of June. 

Experts are not surprised by the number of liquidation orders as the majority of the 136 companies sent for liquidation were corporate defaulters with cases pending for adjudication under the Board for Industrial and Financial Reconstruction (BIFR). 

According to the IBBI newsletter, 110 companies were either in the BIFR, or were non-functional or both. One major reason why these companies ended up in liquidation is that the resolution value for 106 was lower than their liquidation value. 

That is, selling off the company and its assets would be far more valuable for the lenders than finding a new buyer. Only 18 of these companies would receive a resolution value higher than their respective liquidation value. 

Until March of this year, 87 CIRPs ended in liquidation orders and during the April to June quarter another 47 CIRPs ended in liquidation. This includes companies like Yog Industries, Aseem Ispat, Vidhya Vasini Industries, Padmavati Wires and Cables, Varun Corporattion, Zenith Computers amongst others. 

According to data from the IBBI, a total of 214 companies have filed cases for voluntary insolvency under the IBC. Most of them cited non-operations and commercial unviability of their businesses as reasons for filing for liquidation. 

While 214 companies filed for voluntary liquidation, the majority of whom filed applications during the January to March quarter, final liquidation reports have been submitted only in 31 cases at the end of June. 

Even the liquidation process of companies seems to be taking ‘longer than expected’ time as over 100 cases of voluntary liquidation require between 90 to 270 days before the final report can be submitted to the IBBI.