At least 18,629 claims from troubled companies with debt worth more than Rs 5.89 lakh crore (trillion) that filed for bankruptcy have been resolved before being admitted under the Insolvency Code and bankruptcy (IBC), according to the 2021-22 economic survey.
âAs of September 2021, 18,629 applications for commencing Corporate Insolvency Resolution Process (CIRP) from Corporate Debtors (CDs) having an underlying default of Rs 5,89,516 lakh crore have resolved before their admission,” said the economic study released by Finance Minister Nirmala Sitharaman. .
He added: âDistressed assets have a life cycle and their value gradually declines over time. The fact that a CD can change hands has changed the behavior of debtors.
Thousands of debtors resolve distress in the early stages of distress, i.e. when default is imminent, upon receipt of notice of repayment but before application is filed, after application is filed but before admission , and even after the application is admitted, and do its best to avoid the consequences of the resolution process.
This emphasizes the purpose of the IBC process to serve as a mechanism to push the resolution of stressed assets.
The Code has opened up possibilities for resolution, including merger, amalgamation and restructuring of any kind, which often require professional assistance, the Inquiry added.
Global and domestic investors are eyeing India’s troubled market opportunistically.
Moreover, since the passage of the law in 2016, about 421 companies have realized Rs 2.55 lakh crore through resolution plans under the IBC. This is 172% of the realizable value at Rs 1.48 lakh crore when they entered the IBC process.
Cumulatively, the companies owed Rs 7.94 lakh crore to creditors.
Although recovery is incidental under the Code, financial creditors (FCs) recovered 32.11% of their claims, reflecting the extent of value erosion at the time the CDs entered CIRP , but it is the highest among all the options available for recovery from creditors, says the Inquiry.
These companies took an average of 428 days for the conclusion of the process.
Till September last year, 264 companies were also completely liquidated and about Rs 1,983 crore was realized from the liquidation of these companies.
Furthermore, the economic study highlighted the need for a standardized framework for cross-border insolvency.
Adopted by 49 countries to date, this law âaddresses the central issues of cross-border insolvency cases using four main principlesâ: access, recognition, cooperation and coordination.