IBC Bulletin: It’s win-lose for bankruptcy law

0

According to IBBI data, approximately 47% of CIRPs that were closed resulted in liquidation orders, compared to 14% that resulted in a resolution plan.

Some companies rebounded after being acquired under IBC, including Uttam Galva Metallics Limited and Uttam Value Steels Limited. Representative image.

It has been just over six years since the Insolvency and Bankruptcy Code (IBC) 2016 was enacted to consolidate the laws relating to reorganization and insolvency resolution in India.

The IBC is the framework legislation for the resolution of insolvency of all entities in India – both businesses and individuals. The law came into force on December 1, 2016. Prior to the IBC, insolvency and bankruptcy laws in India were multi-layered and fragmented.

Read also : Homebuyers struggling after insolvency of real estate company Supertech

In view of the COVID crisis, the government had suspended the IBC for one year, from March 2000 to March 2021.

‘Game Changer’

Last year, the IBC was hailed as a “revolutionary reform” by Union Trade Minister Piyush Goyal. He said the IBC was the “most successful law” in resolving insolvency in the country. According to him, after the enactment of the IBC, India’s ranking in the “Resolving Insolvency” indicator improved significantly.

“Since the enactment of the CBI, India’s ranking in the ‘Resolve Insolvency’ indicator in the World Bank’s Ease of Doing Business Report has seen a meteoric rise of 84 places! Our collection rate has also improved significantly from 26 (cents on dollar) to 71.6 (cents on dollar),” Goyal said in November 2021 at the 5th Foundation Day Ceremony of the ICAI Indian Institute of Insolvency Practitioners (IIIPI).

Read also : Bank of India moves NCLT against Future Retail and files insolvency plea

Last March, the Department of Finance said that the Corporate Insolvency Resolution Process (CIRP) under the IBC had been initiated by the banks of the 12 major accounts which had been referred by the Reserved Bank of India (RBI).

“Financial creditors had aggregate outstanding claims of ₹3.45 lakh crore against these corporate debtors. Regarding the resolution and settlement of these accounts, the eight corporate debtors, which were resolved through the market-based CIRP, owed a total of ₹2.26 lakh crore to financial creditors while their value of liquidation was ₹0.52 lakh crore. Further, the realizable value for financial creditors through the approved resolution plans was ₹1.16 lakh crore which is 221% of the liquidation value and 51% of the admitted claims,” said the State Minister in Union Finance, Dr. Bhagwat Kisanrao Karad in Rajya. Sabha.

File numbers

According to data from the Insolvency and Bankruptcy Board of India (IBBI) released in March, since the IBC came into effect on December 1, 2016, a total of 5,258 CIRPs have commenced by the end of March 2022. Of those here, 3,406 have been closed. Of the CIRPs closed, 731 were closed on appeal or review or settled, 586 were withdrawn, 1,609 resulted in winding-up orders and 480 resulted in the approval of resolution plans.

Among admitted CIRP cases, manufacturing was the highest at 40%, followed by real estate at 20%. The construction sector recorded 11% of cases and the retail trade followed with 10%.

Read also : Chennai company that made headlines with $4 billion in funding faces insolvency

Only nine cases out of 223 indebted property companies admitted for resolution under the IBC through September 2021 have been resolved, a study by consultancy Grant Thornton Bharat has found. This represents only 4% of cases accepted, compared to an overall resolution rate of 9% under the IBC, he said, according to a Economic period report.

Source: Indian Insolvency and Bankruptcy Board (IBBI)

“Operational creditors (OC) triggered 51.33% of CIRPs, followed by 42.53% of financial creditors (FC) and remaining by corporate debtors (CD). However, about 80% of CIRPs with an underlying defect of less than ₹1 crore were initiated on applications by OCs while about 80% of CIRPs with an underlying defect of more than ₹10 crore were initiated upon request by CF. The share of CD-initiated CIRPs decreases over time. They typically launched CIRPs with very high underlying defaults,” the IBBI said.

About 47% of the CIRPs, which were closed, gave rise to liquidation orders, compared to 14% which resulted in a resolution plan. However, 76% of CIRPs ending in liquidation (1,196 out of 1,581 for which data is available) were previously with the Board for Industrial and Financial Reconstruction (BIFR) and/or have disappeared.

“The economic value of most of these CDs had been almost completely eroded even before they were admitted to the CIRP. These CDs had assets, on average, valued at less than 8% of outstanding debt,” the IBBI said.

Read also : Future Enterprises will raise Rs 3,000 cr through the sale of insurance; aims to reduce debt, avoid insolvency

Until March 31, 2022, a total of 586 CIRPs have been withdrawn due to settlements. Almost three quarters of these CIRPs had claims below ₹10 crore. From January to March 2022, 29 CIRPs resulted in resolution plans with different degrees of realization in relation to the liquidation value.

Resolution plans made ₹2.34 lakh crore

The 1,609 CDs ending in liquidation orders had an aggregate claim of ₹7.95 lakh crore. However, they had assets, on the ground, valued at just ₹0.56 lakh crore. Until March 2022, 328 CDs have been completely liquidated.

The 480 CIRPs, which resulted in resolution plans at the end of March 2022, took an average of 450 days (after excluding the time excluded by the adjudicating authority) to conclude the process. Similarly, the 1,609 CIRPs, which resulted in liquidation orders, took an average of 412 days to complete. In addition, 328 liquidation processes, which were closed with the submission of final reports, took an average of 456 days to close. Similarly, 644 voluntary liquidation processes, which were closed with the submission of final reports, took an average of 422 closing days.

Source: Indian Insolvency and Bankruptcy Board (IBBI)

Till December 2021, 19,803 requests to open CD CIRPs having an underlying default of ₹6,09,470.72 crore have been resolved before admission.

Until March 2022, a total of 480 CIRPs have produced resolution plans. Cost details are available for 455 CIRP. The cost amounts on average to 1.17% of the liquidation value and 0.62% of the resolution value.

The realizable value of assets available with 480 CDs saved, when they entered the CIRP, was only ₹1.31 crore lakh, though they owned ₹7.61 crore lakh to creditors. The resolution plans realized ₹2.34 lakh crore, or around 178% of the liquidation value of these CDs, according to official data.

Helping debtor companies in distress

The IBBI said the primary purpose of the Code is to save the lives of CDs in distress. The Code rescued 480 CDs through March 2022 through resolution plans, of which a third were in serious distress.

However, he returned 1,609 CDs for liquidation. CDs rescued and assets valued at ₹1.31 crore, while CDs returned for liquidation had assets valued at ₹0.56 lakh crore when admitted to CIRP. Thus, in value terms, around 70% of troubled assets have been rescued. Of the CDs sent into liquidation, three-quarters were sick or dead and of the businesses rescued, one-third were sick or dead, the data showed.

Source: Indian Insolvency and Bankruptcy Board (IBBI)

Last August, Union Minister of State for Commercial Affairs Rao Inderjit Singh informed the Rajya Sabha that as of June 30, 2021, 4,540 companies were admitted to CIRP under the IBC.

Giving details on the status of resolution, the minister said that 394 companies had been resolved up to June 30, 2021, in which financial creditors (FCs), including financial institutions, had total claims amounting to at ₹6.80 lakh crore, of which ₹2.45 lakh crore was realized, or 36% of their claims.

The Minister further stated that the Corporate Debtor (CD) insolvency resolution process is market driven and the outcome depends on market forces which vary from case to case and one sector to another. The value realized by creditors depends on the assets available at the admission stage of the case under the Code.

Source: Indian Insolvency and Bankruptcy Board (IBBI)

Those who bounced back

Some companies have rebounded from being acquired under IBC, including Uttam Galva Metallics Limited (UGML) and Uttam Value Steels Limited (UVSL).

“In less than 12 months after being acquired under the Insolvency and Bankruptcy Code (IBC) by Nithia Capital (Nithia) – a global investment firm specializing in industrial turnaround – Uttam Galva Metallics Limited (UGML ) and Uttam Value Steels Limited (UVSL) have been awarded a ‘Positive A; STABLE rating’ by CARE Rating, India,” UVSL said in December 2021.

Nithia and CarVal Investors completed the acquisition of UGML and UVSL for over ₹2,000 crore in early 2021 after winning approval from the National Company Law Appellate Tribunal (NCLAT).

Share.

Comments are closed.