NCLT approves record number of resolution plans between Jan to Sept

December 26, 2020 1:30 AM

While 36 resolutions were approved between January to March period this year, 20 resolution plans were approved in the June quarter amidst Covid-19. The July to September period registered approval of 22 resolution plans in 2020. A total 228 out of 464 cases were closed by liquidation in the current year, as per data till September, 2020.

However, since the creditors and the debtors already arrive at a concensus on initiating the pre-pack resolution, chances of frivolous litigations under the proposed framework are minimised, analysts say.However, since the creditors and the debtors already arrive at a concensus on initiating the pre-pack resolution, chances of frivolous litigations under the proposed framework are minimised, analysts say.

By Ankur Mishra

Despite the challenges posed by the pandemic, a record 78 resolution plans were approved by bankruptcy courts in the first 9 months of 2020 according to Insolvency and Bankruptcy Board of India (IBBI) data. This is the highest number of resolution plans approved by National Company Law Tribunal (NCLT) in 9 months, since the inception of Insolvency and Bankruptcy Code (IBC).

While 36 resolutions were approved between January to March period this year, 20 resolution plans were approved in the June quarter amidst Covid-19. The July to September period registered approval of 22 resolution plans in 2020. A total 228 out of 464 cases were closed by liquidation in the current year, as per data till September, 2020.
Last year, a total 76 resolutions were approved between January to September, 2019. Similarly, only 42 resolution plans were approved by the court during the same period in 2018. A total 277 resolution plans have been approved by IBC till date, as on September, 2020.

Ashish Pyasi, associate partner, Dhir and Dhir Associates, however, said that resolution of 78 cases in 2020 cannot be taken as benchmark for the coming months. He added that in the coming months, there will be a momentum in IBC cases, but whether those will lead to resolution or liquidation, depends on the value of the assets and prospective applicants who will be interested in buying them.

Sonam Chandwani, managing partner at KS Legal & Associates, said that given the debt-ridden ecosystem that existed for decades, four years is a very short time to curb the menace from the roots, and, therefore, more companies have been resolved via liquidation. Pertinently, the situation might see some deterioration in the next few months, simply because of the Covid-19 shock waves, but can be expected to improve thereafter, she added.

Experts also said that some changes should be brought in the IBC. “There have been 3 amendments by now, yet we need a more resilient and sustainable mechanism, addressing the existing challenges amid continuous headwinds, perhaps IBC 2.0 is what we seek for,” Chandwani said.

Veena Sivaramakrishnan, partner at law firm Shardul Amarchand Mangaldas said that ‘prepacks’ would continue to be the need of the hour and would need to become a formalised mechanism to meet the demand. A pre-packaged resolution, often termed as ‘prepack’, allows a company to prepare a restructuring plan in cooperation with creditors before initiating insolvency proceedings. This reduces the time and cost involved in the process. In October, a panel under IBBI chairman M S Sahoo had submitted a report to government on prepack insolvency framework.

Suggesting another change in the IBC, Rajiv Chandak, partner at Deloitte India said that liquidation value should be calculated closer to the submission of resolution plan. Normally, the liquidation value is calculated at the start of the insolvency process. Explaining the rationale, he said that sometimes, the process of resolution takes time way beyond 270 days and the earlier liquidation value is not an appropriate indication at that time.

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