Financial creditors recovered over 64% of admitted claims through IBC in Q4

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Published: May 21, 2020 7:17:48 AM

The improved realisation was due in large part to the resolution of Jaypee Infratech (JIL), where FCs recovered Rs 23,223 crore, over 100% of the amount claimed, shows the latest issue of the newsletter by the Insolvency and Bankruptcy Board of India (IBBI).

Financial creditors,Jaypee Infratech, insolvency process, IBBI, RBI, Lanco Infratech, NCLAT, Icra, Amtek AutoWith the resolution of the Jaypee Infratech asset, the insolvency process for eight of the 12 cases identified by the Reserve Bank of India (RBI) for referral under the Insolvency and Bankruptcy Code (IBC) has been completed.

Financial creditors (FCs) realised 64% of their admitted claims through the insolvency process in January-March, much higher than the historical average of about 46% over the period up to December 2019.

The improved realisation was due in large part to the resolution of Jaypee Infratech (JIL), where FCs recovered Rs 23,223 crore, over 100% of the amount claimed, shows the latest issue of the newsletter by the Insolvency and Bankruptcy Board of India (IBBI).

With the resolution of the Jaypee Infratech asset, the insolvency process for eight of the 12 cases identified by the Reserve Bank of India (RBI) for referral under the Insolvency and Bankruptcy Code (IBC) has been completed.

Amtek Auto, Era Infra Engineering, Lanco Infratech and ABG Shipyard are still in process, with the latter two being liquidated.

Simultaneously, NBCC’s bid to acquire Jaypee Infratech continues to be heard by the National Company Law Appellate Tribunal (NCLAT), even as the tribunal has refused to stay the resolution plan.

About 56.98% of the corporate insolvency resolution processes (CIRPs) which were closed ended in orders for liquidation, as compared to 13.77% ending with a resolution plan. “However, it is important to note that 72.46% of the CIRPs ending in liquidation (637 out of 879 of which data is available) were earlier with BIFR and/or defunct. The economic value in most of these CDs (corporate debtors) had already eroded before they were admitted into CIRP,” the newsletter said.

The IBC has been an important tool for banks to resolve stressed assets since the RBI began to push it as a mode of stress resolution in 2017. Not only have banks evolved consultative and resolution mechanisms centred around the IBC, the legislation is widely believed to have inspired a change in the behaviour of errant promoters. This is set to change over the next 12 months as the government has suspended all fresh insolvency proceedings against companies for a year.

Analysts say while offering relief to companies, the suspension of IBC could make recoveries difficult for banks. Icra vice-president Abhishek Dafria said, “The timeframe of one year appears adequate at present for the entity to sort any temporary cash flow mismatches; however, if the severity of the pandemic were to increase thereby increasing the longevity of the lockdown or lead to fresh lockdowns later on, thus delaying economic revival, then we could see a sudden surge in cases being referred under the IBC after the one-year period. This would be detrimental to the resolution process which is already facing challenges from over-burdened tribunals.”

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