Lower value realisation due to liquidation of corporate debtors

The Indian Express
ENS Economic Bureau
September 22, 2018
About one in every four cases admitted under the Corporate Insolvency and Resolution Process (CIRP) since the implementation of the Insolvency and Bankruptcy Code (IBC) in 2016 have been closed till June 2018. While that is a positive, what is worrying for policymakers is the fact that a majority of the cases that have been closed involves liquidation of the corporate debtor, resulting in lower value realisation for stakeholders alongside payment uncertainties.
Significantly, given the average duration of resolution of about 280 days (for all resolved cases till the first quarter of FY19) from date of admission points to a higher chance of cases facing liquidation under the National Company Law Tribunal (NCLT) route going forward. Also, haircut on all resolved cases was around 45 per cent for financial creditors on the admitted claims.
Of the 977 companies admitted under the Corporate Insolvency and Resolution Process (CIRP) since the implementation of the Insolvency and Bankruptcy Code (IBC) in 2016, a total of 261 were recorded as having been closed by end-June 2018. Notably, 52 per cent of all closed cases were via liquidation of the corporate entity while only 34 (or about 13 per cent) cases were resolved with haircuts averaging around 45 per cent on admitted claims, according to Insolvency Bankruptcy Board of India (IBBI) data. According to a note by Kotak Institutional Equities, the number of liquidated cases and the pace of resolution is an area of concern.

During the April-June quarter 241 corporate defaulters were freshly admitted under the CIRP and around 716 corporate defaulters were still undergoing the process. About 91 of the IBC cases filed against corporate debtors were closed upon ‘appeal and review’ and only 34 cases have seen successful resolutions as of the end of June under the CIRP, according to data from the IBBI.
During the January to March quarter, only 22 cases had yielded a resolution under the CIRP and between April and June resolutions for another 12 cases were wrapped up. These include companies such as Kalpataru Alloys, Electrosteel Steels, Bhushan Steel and Orissa Manganese and Minerals amongst others. The number of cases admitted under the insolvency process has seen a steady rise over the last few quarters. Out of the total admitted cases (971) till the first quarter of FY19, 25 per cent (or 241) cases were admitted in the first quarter of FY19 and out of the total admitted cases, 46 per cent cases were initiated by operational creditors and 39 per cent by financial creditors cases with those admitted by the latter seeing a sharp rise in 1QFY19 to 125 entities, according to the Kotak data analysis.
Out of the 76 cases that were closed till 1QFY19, only 11 cases were resolved while 47 cases faced liquidation. The average duration of resolution of about 280 days (for all resolved cases till 1QFY19) from date of admission hinting at greater chances of cases facing liquidation under the NCLT route, according to the Kotak report.
According to an August Credit Suisse report, another 70 large companies may be taken to the IBC as a result of the Reserve Bank of India’s February circular on resolution. It had also indicated that increasing referrals to the National Company Law Tribunals is also slowing down the process of admission of cases and their resolution.

Comments

Post a Comment

Popular posts from this blog

India Joins Russia in Voting Against West-Backed Move to Expand Powers of OPCW

The Wire: June 28, 2018 New Delhi: India voted against a UK-backed move that will allow the global chemical weapons watchdog to apportion blame for illegal attacks, criticising the decision to grant “unchecked powers” to the head of the group which could be used for “partisan” purposes. On Wednesday, more than two-thirds of the member states of the Organisation for the Prohibition of Chemical Weapons (OPCW) voted to authorise the international body to identify the perpetrators and sponsors of a chemical weapons attack. It also specifically called on the OPCW’s technical secretariat to begin work on identifying the perpetrators behind the use of chemical weapons in Syria. The draft decision, sponsored by 30 countries, was adopted at the fourth special session of the conference of the states parties to the Chemical Weapons Convention at the Hague, with 82 in favour and 24 negative votes. While Europe, the United States and their allies voted ‘yes’, there was strong oppo...
Read more

ED tracks Swiss Bank A/Cs of Agusta scamster

The Poineer February 10,2019 Rakesh K Singh The Enforcement Directorate (ED) has tracked a dozen Swiss bank accounts in the name of Rajiv Saxena, who is key accused in the Rs 3,600 crore AgustaWestland VVIP chopper scam. The ED has also found out accounts held by  his family members and associates where the kickbacks in the now scrapped deal were allegedly parked. Two bank accounts are in the name of Rajiv Saxena’s  associates Pankaj Jain and Sumita Jain who are also the authorised signatories. The  third is in the name of another associate Ajit Singh Bubber, but Rajiv and his family members are authorised signatories. The remaining nine accounts are largely owned and operated by Rajiv, his family members and associates. Rajiv Saxena was deported by the UAE authorities on January 30 and the ED formally arrested him the next day and a court later granted his remand to the agency. He is currently undergoing custodial interrogation by the ED. The agency had in 2017...
Read more

Pakistan under biggest pressure from anti-terror watchdog FATF, says Ajit Doval at NIA meet

India Today October 14, 2019 Jitendra Bahadur Singh, Kamaljit Kaur Sandhu  National Security Adviser Ajit Doval on Monday slammed Pakistan for providing a safe breeding ground for terrorists and using terrorism as an instrument of state policy. "If a criminal has the support of a state, it becomes a great challenge. Some of the states have mastered this. In our case, Pakistan has made it as an instrument of its state policy," NSA Doval said at an event of the National Investigation Agency on Monday. 'War no more an option' The National Security Adviser added that Pakistan was under immense pressure at the Financial Action Task Force (FATF) meeting, currently underway in Paris, to rein in terror groups operating from its soil, National Security Advisor Ajit Doval said on Monday. "One of the biggest pressures that has come on Pakistan today is because of the proceedings of Financial Action Task Force (FATF), it has created so much pressure on them...
Read more