By March 2023, a total of 6,571 corporate insolvency resolution process (CIRPs) had commenced, of which 4,515 or 69% were closed. Among the closed CIRPs, 21% were closed on appeal, review, or through settlements, 19% were withdrawn, 45% ended in orders for liquidation, and 15% resulted in the approval of resolution plans.
The average time for concluding the 678 CIRPs that yielded resolution plans was 512 days, while CIRPs ending in liquidation took an average of 456 days. Voluntary liquidation processes took an average of 411 days for closure. This is much higher than the 330-day timeframe provided by the code for resolution, highlighting the delays in the process.
Another challenge faced by lenders is attracting investors for legacy non-performing assets. Investors remain wary of the complexities involved in restructuring and turning around these troubled assets, which has hindered the resolution process.
The IBC has successfully rescued 678 corporate debtors (CDs) through resolution plans, with assets valued at ₹1.69 lakh crore. However, 2,030 CDs ended up with orders for liquidation, with assets valued at only ₹64,000 crore, highlighting the challenges faced by distressed companies. Also, out of the 678 corporate debtors rescued through resolution plans, 249 were either pending before the erstwhile Board for Industrial and Financial Reconstruction (BIFR) or were defunct.
“IBBI has recently floated a discussion paper with the twin objectives of increasing the possibility of resolution, maximising the value of resolution and timely completion of the process. Hope this will lead to enhanced IBC effectiveness,” Hari Hara Mishra, CEO, Association of ARCs in India.While the IBC has been effective in terms of financial recovery, with financial creditors recovering 34.3% of their claims, realisation in comparison to liquidation value was 169%.”Though realisation is incidental under the Code, financial creditors recovered 34.3% of their claims which only reflects the extent of value erosion by the time the CDs entered CIRP,” said RBI.
There has been a demand from various stakeholders to strengthen the code to ensure timely resolution processes and improve mechanisms to attract investors to distressed companies. The Insolvency and Bankruptcy Board of India (IBBI) has taken several steps in this regard, including the recent circular regarding applications on CIRPs under Sections 7 and 9, aimed at facilitating effective hearings of cases and expediting the admission of CIRP applications. These measures are expected to help in admitting the tens of thousands of cases pending with the National Company Law Tribunal (NCLT) benches.