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Over 27,500 applications for resolution process against corporate debtors have been withdrawn before their admission, with regulator IBBI emphasising that the credible threat of the insolvency law that ownership of debtors might change has changed the behaviour of debtors.
These Corporate Debtors (CDs) had an underlying default of Rs 9.74 trillion .
The Insolvency and Bankruptcy Code (IBC), introduced in December 2016, provides for a time-bound and market-linked resolution of stressed assets.
"The credible threat of the Code, that a CD may change hands, has changed the behaviour of debtors. Thousands of debtors are resolving distress in early stages of distress.
"They are resolving when default is imminent, on receipt of a notice for repayment but before filing an application, after filing application but before its admission, and even after admission of the application, and making best effort to avoid consequences of the resolution process," the IBBI said in its latest newsletter.
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The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the IBC.
According to the newsletter, 27,514 applications for initiation of CIRPs (Corporate Insolvency Resolution Process) of CDs having underlying default of Rs 9,74 trillion were withdrawn before their admission till October 2023.
Till December 2023, IBC has helped in rescuing 3,050 CDs -- 891 were through resolution plans, 1,124 through appeal or review or settlement, and 1,035 through withdrawal.
The resolved CDs resulted in realisation of around 32 per cent, as against the admitted claims and more than 169 per cent compared to the liquidation value.
Creditors have realised Rs 3.21 trillion under the resolution plans till December 31 last year.
The fair value and liquidation value of the assets available with these CDs, when they entered the CIRP, was estimated at Rs 2.97 trillion and Rs 1.90 trillion , respectively, as against the total claims of the creditors worth Rs 10.07 trillion , the IBBI said.
As many as 2,376 CDs have been referred for liquidation.
"Till December 2023, 830 CDs have been completely liquidated. These 830 CDs together had outstanding claims of Rs 1.83 trillion but the assets valued at Rs 0.09 trillion ," the newsletter said.
In his message in the newsletter, IBBI Chairperson Ravi Mital said that while the CD is reorganised during CIRP, the insolvency resolution process for the PGs (Personal Guarantors) prioritises debt restructuring.
This is the opportunity the IBC affords over outright bankruptcy, with bankruptcy serving as a last resort should the debtor's repayment plan falter, he said and stressed that "by cooperating in the process and submitting a repayment plan for approval by creditors, debtors can effectively discharge their debt liabilities instead of initiation of their bankruptcy process".
It is seen that CIRP proceedings are often delayed due to excessive litigation. The debtors' attempt to prolong the admission or the resolution process leads to erosion in CD's value, he noted.
Paradoxically, he said this prolongation amplifies the liabilities of PGs, and hence it is in the interest of the debtors to cooperate during the resolution of the CD.
Recently, the Supreme Court upheld the constitutionality of various provisions pertaining to PGs under the IBC.
"With 2,467 insolvency applications filed against PGs, involving debts exceeding Rs 1.71 trillion as of December, 2023, the clarification of the SC on the obligations of these guarantors under the IBC significantly enhances creditors' chances of recovering these dues," Mital said.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
