Can improve recovery rate under IBC to 40%: IBBI chairperson to RPs

The Chairperson of the Insolvency and Bankruptcy Board of India (IBBI), Ravi Mital, on Friday called for taking steps -- including some innovative ones -- to improve the recovery to creditors from the current around 32 per cent to at least 40 per cent.

“Currently, the recovery rate is around 32 per cent of admitted claims and 80-85 per cent of the fair value. If we try and improve our working, we can definitely improve this recovery to creditors to at least 40 per cent,” Mital said, adding that in the current scenario, 10 per cent would mean an additional recovery of around Rs 1 trillion.

 

Fair value is the valuation of a company when it comes for resolution under IBC.

The Insolvency and Bankruptcy Code (IBC), which provides for a market-linked and time-bound resolution of stressed assets, has helped return more than Rs 3.4 trillion to creditors.

Mital also said that in the past few years, an average of 125 resolutions took place under IBC per year.

Last year, this number rose to 270.

“I am sure this year we will do more than 270 and break our own record,” Mital said. He was addressing the International Convention on Insolvency Resolution and Valuation organised by the Institute of Chartered Accountants of India (ICAI) in New Delhi.

Mital said that the “main task” of resolution professionals (RPs) should be to ensure that entities going through an insolvency process must be resolved as going concerns.

“When you [RPs] take over the process, you must ensure that it is done in the fastest time and it is sold as a going concern,” he said.

In accounting terms, a going concern entity is expected to survive and thrive for at least the next 12 months, even if it is going through insolvency proceedings.

“It is to no one’s credit if the firm gets liquidated,” he added.  

He also said that RPs should be “as innovative as possible”, adding that it is also important to be transparent. “No one will take action against you if you do genuine innovations,” he said.

“Be as transparent as possible and make as much information as possible for the stakeholders,” he added.