As per the reports, resolution & recoveries through cases pending in bankruptcy courts may hit 30-40% this year as courts have stopped accepting new cases. Suspension of new proceedings under the Insolvency & Bankruptcy Code (IBC) is expected to cause 30-40% downfall in realization to creditors of a company in Financial Year 20-21. The number of acceptable resolution plans would also be impacted. Creditors could realise about Rs. 60,000-70,000 crore in Financial Year 20-21 through successful resolution plans from IBC as compared to about Rs. 1 lakh crore in last financial year.
The pandemic of COVID-19 has brought new operational challenges for various parties involved in a resolution process. This could result into limited cases to get their resolution plan successful, especially in quarter 1 of Financial Year 20-21. Successful resolution of a large housing finance company will be a key factor to determine the extent of amount realized by the financial creditors this year. DHFL, a Housing Development Finance Firm is undergoing insolvency proceedings as it owes over Rs. 80,000 crore to its creditors.
New insolvency proceedings which will be initiated in Financial Year 20-22 are unlikely to get resolved in the same year, as average time period taken for corporate insolvency resolution proceedings to conclude along with a resolution plan is quite high. Suspension of fresh insolvency proceedings for one year would provide relief to the companies severely impacted by COVID-19 pandemic & are unable to pay their creditors. But, if the COVID-19 pandemic gets more severe, then there could be a sudden increase in cases being referred under IBC after the period of one-year.
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