A fourth of IBC cases have gone into liquidation: Bankruptcy Board member

Nearly a quarter of the cases admitted under the Insolvency and Bankruptcy Code (IBC) till January 31, 2020, have gone into liquidation, fetching a liquidation value as low as 6.67 per cent.

According to Navrang Saini, Whole Time Member, Insolvency & Bankruptcy Board of India (IBBI), 3,455 cases were admitted under IBC till January 31. Of these, 265 were settled, 141 cases were withdrawn under Section 12 A, and 198 were approved. As many as 826 cases went into liquidation, accounting for nearly 24 per cent of the number of cases admitted. Close to 2,028 cases are still going on.

Per IBBI data, financial creditors have been able to recover 44.01 per cent of their capital claims, while operational creditors have recovered 47.68 per cent. The average time for resolution was 397 days.

“Out of the 826 cases under liquidation, 571 cases were either with the BIFR (Board for Industrial and Financial Reconstruction) or not going concerns. In liquidation, the average time taken is 311 days, compared to the earlier regime, when it would take much longer (nearly 8-10 years),” Saini told BusinessLine on the sidelines of a seminar on IBC organised by the Confederation of Indian Industry here recently.

While the timeline is one of the main objectives of the Code, it has been difficult to strictly adhere to it due to several challenges.

“The Code is still evolving; jurisprudence is developing so the cases are taking more time. In many cases the matter is being taken to the apex court, so the average time taken is 397 days,” he said.

According to PN Prasad, Deputy Managing Director, Commercial Clients Group I, State Bank of India, India is at par with global developed economies in terms of liquidation, at 80 per cent. However, as far as recovery is concerned, the country stands at 5 per cent, compared to developed economies’ average of 20 per cent. This is primarily because resolutions start early in developed economies, when there is still value in the assets. Moreover, such economies also have a “developed secondary market” with dealers, venture funds and similar mechanisms.

Success of IBC

Talking about the success of the IBC in India, Saini cited the recent World Bank report that revealed India’s rank in terms of ease of doing business has improved by 14 places; in resolving insolvency, the country jumped to 52 in 2019, from 108 in 2018.

The Code has also played a major role in reducing non-performing assets (NPAs) from ₹52-lakh crore in 2014 to ₹20-lakh crore at present, he said.

“This is the real impact of the Code — where NPAs have been brought down. And, there has been a behavioural change in the debtor-creditor relationship. Nowadays, if an account is declared an NPA or is about to be declared an NPA, promoters try to reconvert that into a regular account. Even if the matter is taken to the NCLT (National Company Law Tribunal) they try to settle it before admission,” he added.

According to IBBI data, about 10,000 cases have been withdrawn before admission.