Money & Banking

Sharp decline in CIRP cases in Q1 and Q2 due to temporary suspension

Our Bureau. Mumbai | Updated on January 11, 2021

The purpose of an insolvency resolution process is to hand over the asset of the corporate debtor to a bona fide new resolution applicant, said the NCLAT in its order istock.com/lakshmiprasad S lakshmiprasad S

Only 161 cases were admitted for Corporate Insolvency Resolution Process in the first half of this fiscal year due to the temporary suspension of the process after the Covid-19 pandemic broke out.

The Reserve Bank of India’s Financial Stability Report, January 2021, which was released on Monday, revealed that 81 cases were admitted for CIRP in the first quarter of the fiscal, resolution plans were approved for 20 cases, and liquidation started for another 25.

In the second quarter, 80 cases were admitted, 22 saw the approval of the resolution plan, and liquidation started in 68 cases.

“There was a sharp decline in the number of CIRPs during Q1and Q2 of 2020 compared to the previous quarters, owing to temporary suspension of the processin the wake of the pandemic situation,” the FSR noted.

The Ministry of Corporate Affairs had, in December last year, further extended the suspension of the Insolvency and Bankruptcy Code by three months, and it will now expire on March 25.

Manufacturing sector

However, the number of CIRPs admitted since the inception of the Insolvency and Bankruptcy Code (IBC) stood at 4,008 by the end of the second quarter of the fiscal year. With as many as 1,639 cases admitted, the manufacturing sector had the largest number of cases.

The report further revealed that of the CIRPs initiated, only 277 ended in resolutions up to September-end 2020.

Liquidation has commenced in another 1,025 cases, while as many as 1,942 cases are still continuing, the data showed.

“Realisation by creditors under resolution plans in comparison to liquidation value stood at 185.2 per cent, while the realisation was 43.6 per cent in comparison to their claims,” it said.

Significantly, of the above 277 resolutions, 91 corporate debtors were under the Board for Industrial and Financial Reconstruction processes or defunct.

The CIRPs, which yielded resolution plans by the end of September 2020, took an average of 384 days (after excluding the time excluded by the Adjudicating Authority) for conclusion of the process.

The report also revealed that out of the CIRPs closed, nearly half yielded orders for liquidation.

“In 73.5 per cent of these cases (751 out of 1022 for which data is available), the corporate debtors were earlier with BIFR and / or defunct, and the economic value in most cases had already eroded before they were admitted into CIRP,” it said, adding that these corporate debtors had assets, on average, valued at less than five per cent of the outstanding debt amount.

Published on January 11, 2021

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