Though the major purpose of the IBC Code 2016 was to prepare a resolution plan so that the companies could function in a better way, the rule has liquidated many more companies than it has resolved.
In over three years of the Insolvency and Bankruptcy Code, the number of bankrupt companies liquidated under the regime has far exceeded the number of corporate resolutions, by nearly four times, somewhat defying the actual purpose of the new system. While 156 of the cases admitted under the Corporate Insolvency Resolution Process (CIRP) have been resolved till September 2019, the liquidation process has started in as many as 587 cases, according to the data released by the Insolvency and Bankruptcy Board of India. Thus, IBC has liquidated many more companies than it has resolved, against its primary purpose of resolving insolvency and bankruptcy cases to bring sick companies bank to revival.
The IBBI data also shows that over half of the cases closed under CIRP ended in liquidation, and only 14.93 per cent ended with a resolution plan approved. It should be noted that three-fourths of the liquidated companies were earlier with BIFR or were defunct. Also, in many of the so-called resolved cases, orders are pending in different courts and hence the creditors are yet to get their money, and transfer of assets yet to happen.
“The initial IBC euphoria is fading away with an average of 4 out of 5 companies going into liquidation and recovery in resolved cases, excluding very large steel assets, hovering around historical Indian average recovery of 26%,” Hari Hara Mishra, Director, UV ARC Ltd, told Financial Express Online. To have policy cohesiveness and timely resolution, conflicting regulatory positions under various Acts need to be resolved, he added.
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With the new issues such as attachment of underlying securities, charge framed under PMLA against financial creditors by authorities like ED, cropping up, the trouble is getting compounded. The resolution of 12 large accounts, mostly related to steel companies, together had an outstanding claim of Rs.3.45 lakh crore as against liquidation value of Rs 73,220 crore.
However, there are also companies that want themselves to be liquidated. At the end of 30 September 2019, directors or designated partners of 498 companies initiated voluntary liquidation.