Resolution plans under the Insolvency and Bankruptcy Code (IBC) have yielded double the liquidation value for creditors who are realising an average 45% of their claims, according to Insolvency and Bankruptcy Board of India chairman MS Sahoo. On an average, resolutions through the Corporate Insolvency Resolution Process (CIRP) take 300 days and entail a cost of 0.5%, he said. The average time taken for resolution is still higher than the 270 days stipulated under the IBC, mainly due to litigations.
“This is significantly better as compared to the previous regime which yielded a recovery of 25% for creditors through a process which took about five years and entailed a cost of 9%,” industry body Ficci said in a statement quoting Sahoo as saying. The IBBI chief was speaking at the Ficci-IBBI-CGI-HK Conference on IBC in Hong Kong.
Sahoo said the repayment of debt is no longer an option; rather it’s an obligation as tolerance for default has disappeared. “Through the process of resolution, the ownership (of the stressed firm) often shifts to third parties. Thus, ownership of firm is no more a divine right and equity is no more the only route to own a company,” Sahoo said.
Creditors also need to explain to themselves and their stakeholders why they initiated an insolvency proceeding or why they did not, in case of a default. Consequently, there would never be a high value default if this law exists in the statute book, he added. The IBC has proved to be superior to the tools used earlier. According to an RBI report, released in December 2018, banks recovered as much as 41.3% of their claims in cases where resolution took place under the IBC in FY18, against just 12.4% through other mechanisms such as SARFAESI Act, Debt Recovery Tribunals and Lok Adalats (mostly resorted to in the UPA era). The recovery under the IBC improved further in FY19.
In January, Union minister Arun Jaitley said creditors had apparently recovered some `2 lakh crore by just filing insolvency applications with the NCLT. Fearing that they would lose their firms if the IBC was invoked, defaulters cleared dues before the adjudicating authority admitted the lenders’ plea. The government is expecting an extra Rs 70,000 crore soon from the likely resolution of Bhushan Power and Steel and Essar Steel.
However, promoters’ dogged pursuit to hold on to their firms has put the law to its toughest test. Litigation has delayed resolution in high-profile cases. For instance, Essar Steel, which was admitted by the NCLT on August 2, 2017 after a default of around Rs 49,000 crore, is yet to see finality. The resolution process for Alok Industries and ABG Shipyard is still not over, though they were admitted in July-August 2017. The resolution of Monnet Ispat and Energy took 409 days.