Insolvency and Bankruptcy Code (IBC) has brought about behavioural changes among corporate debtors with thousands of them opting to resolve the distress at early stages wherever default is imminent, the Economic Survey 2021-22 said on Monday.
The main objective of the Code is resolving the Corporate Debtors (CDs) in distress.
Distressed assets have a life cycle and their value gradually declines with time. The fact that a CD may change hands has changed the behaviour of debtors, the survey, tabled in Parliament by Finance Minister Nirmala Sitharaman, said.
"Thousands of debtors are resolving distress in the early stages of distress, either when the default is imminent, on receipt of a notice for repayment but before filing an application, after filing the application but before its admission, and even after admission of the application, and making best effort to avoid consequences of the resolution process," it said.
Advertisement
According to the survey, as many as 18,629 applications for initiation of CIRP (Corporate Insolvency Resolution Process) of CDs having underlying default of Rs 5,89,516 crore were resolved before their admission till September 2021.
Also, a total of 527 CIRPs have been withdrawn under section 12A of the Code until September 2021. Almost three-fourth of these CIRPs had claims of less than Rs 10 crore and 701 CIRP cases have been closed on appeal/ review/ settled, it said.
On the resolution front, as many as 421 cases of corporate debtors were resolved under the IBC by September 2021 while a total of 1,419 CDs were referred for liquidation.
Advertisement
As per the survey, the resolution of these 421 cases helped recover Rs 2.55 lakh crore against the total debt of Rs 7.94 lakh crore -- reflecting a success rate of over 32 per cent.
The realisable value of the assets available with the 421 CDs rescued when they entered the CIRP was only Rs 1.48 lakh crore though they owned Rs 7.94 lakh crore to creditors.
"The resolution plans realised Rs 2.55 lakh crore, which is more than 172 per cent of the realisable value of CDs. Though recovery is incidental under the Code, the Financial Creditors (FCs) recovered 32.11 per cent of their claims, which reflects the extent of value erosion by the time the CDs entered CIRP, yet it is the highest among all options available to creditors for recovery," the Survey said.
On the liquidation front, a total of 1,419 cases had aggregate claims of Rs 7.38 lakh crore.
"Till September 2021, 264 CDs have been completely liquidated which had outstanding claims of Rs 45,790 crore but the assets were valued at Rs 2,025 crore. Rs 1,983 crore was realised through the liquidation of these companies," the survey said.
On the time and cost parameters, the 421 CIRPs resolved took an average 428 days (after excluding the time excluded by the adjudicating authority) for the conclusion of the process.
The cost works out to an average to 0.98 per cent of liquidation value and to 0.54 per cent of resolution value. The 1,419 CIRPs, which ended up in orders for liquidation, took an average of 375 days.
Advertisement
Further, 264 liquidation processes, which have closed by submission of final reports took an average of 427 days for closure.
The survey has also advocated simplification of voluntary liquidation process.
"However, the procedure of voluntary exit of business still needs to be simplified significantly, on top of recent progress," it added.
Apart from simplifying issues in various steps in the processes, there is a need for the creation of a single window for the entire process.
A portal that combines all the steps of the liquidation process altogether, starting from application by companies to processing by all departments will prove to be very useful, the survey said.
Just one email a week