The National Company Law Tribunal (NCLT) approved a record 269 resolution plans under the Insolvency and Bankruptcy Code (IBC) in FY24, surpassing the previous high of 189 cases in FY2023, according to an analysis by ICRA. 

The agency assessed that creditor claims of ₹1.7 lakh crore were resolved through approval of resolution plans in FY2024, against ₹1.5 lakh crore in FY2023. However, haircuts remained high at 73 per cent, against 64 per cent seen in the preceding fiscal. 

ICRA expects average recoveries for creditors to remain modest at 30-35 per cent of claims even in FY2025, while recovery from the liquidation process would be closer to 5 per cent. 

Duration of resolution process a worry

The increase in average duration of the resolution process remains a worry, ICRA said. 

The average duration for closing CIRP (corporate insolvency resolution process) yielding a resolution plan increased to 843 days in FY2024, against 831 days in FY23. 

The number of CIRPs closed through liquidation orders continue to outpace those yielding a resolution plan. The NCLT also passed liquidation orders for 446 corporate debtors in FY2024, against 400 corporate debtors in FY2023 

Dip in number of insolvency resolution processes

The NCLT has brought down the number of ongoing corporate insolvency resolution processes (CIRPs) to 1,920 as on March 31, 2024, from 1,953 as on March 31, 2023. In FY2024, fresh admissions under IBC declined to 987 corporate debtors. 

Abhishek Dafria, Senior Vice-President and Group Head, Structured Finance Ratings, ICRA, said: “It is heartening to see the increase in number of CIRPs that are yielding a resolution plan and, thus, managing to keep the corporate debtor as a going concern, thereby, safeguarding jobs to some degree.  

“Nonetheless, we continue to find creditors approaching the NCLT to admit a defaulting corporate debtor with substantial delays, which results in a significant erosion of assets.”  

Further, there is an acute difficulty in closing CIRPs in a time-bound manner on account of litigation by the promoters or dissenting creditors, as well as overburdened NCLT benches, Dafria said. 

He opined that the increase in the average duration for closing a CIRP yielding a resolution plan contributed to a worsening of the haircut that the creditors had to take through the IBC process. 

The number of CIRPs that have resulted in liquidation continues to be significantly high, at 45 per cent of the 5,467 closed CIRPs, since the inception of IBC, Dafria said.  

“Only 17 per cent yielded a resolution plan, with the remaining cases withdrawn post-NCLT admission. As on March 2024, liquidation for 960 corporate debtors had been completed, wherein the creditors realised a paltry 4 per cent of their total admitted claims,” he said. 

Dafria observed that the objective of admitting an entity under IBC is not to recover claims through liquidation, but for most cases, there has been no other alternative, either due to lack of bids or low valuations submitted by the bidders.  

More than 75 per cent of the CIRPs that entered into liquidation weredefunct entities or were already under the Board of Industrial and Financial Reconstruction (BIFR) at the time of admission under the IBC.  

“This again demonstrates the need for creditors to approach the NCLT benches to resolve defaulting entities sooner to have a better chance of keeping the entity as a going concern.  

“We, thus, fear that average recoveries for creditors will remain modest at 30-35 per cent of claims even in FY2025, while recovery from the liquidation process would be closer to 5 per cent,” Dafria.