India Entry & Business Startup Consultings

Financial creditors recovered over 64% of admitted claims through IBC in Q4

As per the reports, financial creditors realized 64% of their admitted claims through insolvency process in January-March which is much higher than average of about 46% over the period up to December 2019. The realization was due in large part to the resolution of Jaypee Infratech (JIL), where financial creditors recovered Rs. 23,223 crore, over 100% of the amount claimed as per the latest newsletter issued by the IBBI.     With the resolution of Jaypee Infratech asset, the insolvency process for eight of the 12 cases identified by the Reserve Bank of India for referral under the IBC has been completed. NBCC’s bid to acquire Jaypee Infratech is continuing to be heard before the NCLAT, even as the tribunal has refused to stay the resolution plan. About 56.98% of the Corporate Insolvency Resolution Processes (CIRPs) which were closed ended in orders for liquidation, as compared to 13.77% ending with a resolution plan. It is important to note that 72.46% of the CIRPs which ended upon liquidation of the companies (637 out of 879 as per the available data) were earlier with BIFR and/or defunct. The IBC has been an important tool for banks to resolve stressed assets since the RBI began to push it as a mode of stress resolution in 2017. The banks have evolved consultative and resolution mechanisms centered around IBC, the legislation (Insolvency & Bankruptcy Code) is also widely believed to have inspired to bring a change in the behavior of offending promoters. This is set to change over the next 12 months as the Central Government has suspended all fresh insolvency proceedings against companies for a year. It is believed that the suspension of IBC could make difficult to recover money from the banks. “The time-period of one year appears to be adequate at present, during the times of pandemic of COVID-19to sort any temporary cash flow mismatches. However, if the severity of the pandemic were to increase upon increasing the longevity of the lockdown or lead to fresh lockdown later on, it could thus delay economic revival, then we could see a sudden increase in cases being referred under the IBC after the period of one year gets over. This would be detrimental to the resolution process which is already facing challenges from tribunals over-burdened with cases.”

 

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