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The number of corporate insolvency cases admitted in tribunals stayed low at 164 in the three months ended 30 June despite the government’s decision to lift the one-year moratorium on creditor action against defaulters in March.

This is expected to offer relief to the government, which decided to lift the suspension on 25 March amid concerns about widespread financial stress. The corporate affairs ministry assessed that an increase in the payment default threshold from 1 lakh to 1 crore and a new alternative resolution scheme for small companies—called the pre-pack scheme—would check any sudden rise in insolvency cases.

At the end of June, 4,540 bankruptcy cases were admitted in tribunals, an increase from 4,376 at the end of March, according to data sourced from the ministry and the Insolvency and Bankruptcy Board of India (IBBI).

Fresh filings at 164 when the bankruptcy code is fully functional are not way too more than the average quarterly filings in FY21 when bankruptcy filings were allowed only for pre-pandemic defaults. Prior to the covid-19 pandemic, the quarterly average was 495 in the year ended March 2020. As many as 1,978 cases were admitted in bankruptcy courts that year.

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Fewer bankruptcy cases in the June quarter could probably be attributed to efforts made to resolve some of the accounts under the Reserve Bank of India’s 7 June circular, said Anoop Rawat, partner, insolvency and bankruptcy at law firm Shardul Amarchand Mangaldas & Co. RBI provided a stressed asset resolution framework on 7 June 2019.

Experts also said that even during the suspension of the Insolvency and Bankruptcy Code (IBC) for defaults during the one-year period ended 24 March, creditors had other options such as the enforcement of security, civil suit and proceeding against personal guarantors.

“Some of the creditors would have considered these alternatives. Further, the scope for better recovery of funds is only during a stable economic period," said Divakar Vijayasarathy, founder and managing partner at DVS Advisors Llp, a consultant.

“In a pandemic situation like this, where the economy is going through a stressed period, the extent of haircut would be bigger, and hence creditors would prefer to wait for the right time," he said.

The number of applications from July is to be watched for, and the real impact would be visible during the second half of the year unless the government suspends the IBC again, he said.

To be sure, the number of cases admitted in tribunals may not fully reflect the full measure of stress among businesses.

“The admission of cases reflects the number of cases admitted by the National Company Law Tribunal and may not reflect the correct number of cases filed. There are many cases that are pending admissions for several reasons," explained Rawat.

The government’s first economic package this fiscal, announced in June after the Union budget in February, focused extensively on making credit available to businesses struggling to stay afloat.

The 6.28 trillion package sought to boost liquidity and offered risk cover for merchandise and project exports. The Union budget laid emphasis on capital spending to create more opportunities for businesses.

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