The Insolvency and Bankruptcy Code (IBC), which has now turned five, has helped rescue as many as 396 companies till June 30 this year – this is from the 4,541 corporate insolvency cases that had commenced between December 1, 2016, and June 30, 2021, official data showed.

A positive surprise

Rescue essentially means the resolution plans for these 396 companies have been approved. What has, however, come as a positive surprise is that the realisation from the resolution plan was as high as 174 per cent of the liquidation value, implying that excess recovery of ₹74 was a clear bonus from the code, say IBC observers. Any other option of recovery or liquidation would have recovered at best ₹100 minus the cost of recovery/liquidation, while the creditors recovered ₹174 under the code, they added.

The realisable value of the assets available with the 396 corporate debtors rescued, when they entered the corporate insolvency resolution process (CIRP), was only ₹1.45-lakh crore, though they owed ₹7.56-lakh crore to creditors. The resolution plans for the 396 companies realised ₹2.54-lakh crore, which is about 174 per cent of the liquidation value.

Though realisations are incidental under the code, whose main purpose is to to rescue the firm, the fact that financial creditors are able to recover 36 per cent of the claims is noteworthy, as this is the highest among all options available to creditors for recovery, according to some experts.

Bikash Jhawar, Partner, Saraf & Partners, said: “This is the correct way of looking at the situation and not from the perspective of haircuts which everyone looks at. We have to understand that the objective of the IBC is to maximise the value for stakeholders and clearly statistics show that resolutions are beneficial and provide value maximisation for all stakeholders.”

Of the 4,541 CIRPs that had commenced by the end of June, as many as 2,859 have been closed.

Of the CIRPs closed, 653 have been closed on appeal or review or settled; 461 have been withdrawn; 1,349 have ended in orders for liquidation; and 396 were approved as resolution plans.

‘Treading on the right path’

Ashish Chhawchharia, Partner and National Head - Restructuring Advisory at Grant Thornton Bharat, said: “The fact that by the end of June 2,859 cases were closed indicates that the IBC is treading on the right path despite having faced constraints. Further, the success of the IBC cannot be measured only from statistics such as recoveries made or time taken. It has altered the culture of borrowing in the country, and created huge deterrents for future insolvencies.”

Aseem Chawla, Managing Partner, ASC Legal, said: “On the fifth anniversary one can look back and suggest that unveiling of the IBC has been a mixed bag. On the resolution front one cannot lose sight of dues to creditors, which would effect creditors’ own financial gearing and liquidity. With frequent court interventions, the results have been achieved only by the big and mighty who could afford high-stake litigations.

“All in all, the IBC is a good start, but with the passage of time, it needs more improvisation than before.”

Dhrupad Vaghani, Associate Partner, Economic Laws Practice, said: “The IBC has been successful in maximising the value of the stressed companies as the recovery of debts should be ascertained not by comparing the realised amount with the admitted claims, but rather by comparing the realised amount with the value of assets of a company under stress – liquidation value.”

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