Up to 69% of the total number of cases under the Insolvency and Bankruptcy Act, or IBC, were closed in March 2023, according to data from the IBBI quarterly bulletin. Of the 6,571 files under IBC since its creation, 4,515 files have been closed. While 2030 of business insolvencies, or 45% of closed cases, are being liquidated, 55% include corporate debtors that have been rescued, either by settlement, appeal or resolution.
With specific reference to “Resolution Plans”, there were 678 cases at the end of FY23. A total of 678 corporate insolvencies were handled through “Resolution Plans” under the IBC over the past six years since its inception, representing just over 10% of the total number of cases under the IBC and 27% of cases closed through FY23-end.
Creditors, both financial and operational, filed claims worth Rs 8.99 lakh crore under these resolution plans, but by the time the insolvency process was initiated, the “just value” of the assets had fallen to Rs 2.65 lakh crore or had lost 70% of the value, while the liquidation value was even lower at 19% of the original claim or Rs 1.70 lakh crore. Financial and operational creditors realized Rs 2.86 lakh crore by the end of FY23, taking a haircut of 68% on the original value of their claims.
As Uday Kotak, CEO of Kotak Mahindra Bank says, banks should be able to get back the money they lend, otherwise it limits their ability to take risks and undermines capacity building in the sector. “I think the concept of IBC was a great concept, it was really the basis of creditor control, but I think there’s work to be done. I think we really need to fix the justice system that is compatible with a bankruptcy law, because ultimately if the banks lend money, we have to be able to get the money back. If we have a problem there, it limits our ability to take better risks.” Kotak said CNBC-TV18 last week.
However, the government has always pointed to recovery rates against the “fair value” of assets under the IBC. In 586 of the 678 resolutions, the creditors received more than 83% of the fair value of the assets, which implies that the discount was only 17% compared to the 68% loss suffered in relation to the initial claims.
However, over the past year, the magnitude of IBC haircuts appears to have diminished. According to IBBI data, of the Rs 1.42 crore in claims admitted in FY23, just over Rs 51,000 crore or 36% were recovered under various resolution plans. . In addition, the number of resolutions at 180 in FY23 was the highest so far under the IBC.
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