Home >News >India >Liquidation of companies still the most likely outcome under IBC
Jaypee Infratech was among the 12 companies against whom the Reserve Bank of India (RBI) had asked banks to file insolvency petitions. (Photo: PTI)
Jaypee Infratech was among the 12 companies against whom the Reserve Bank of India (RBI) had asked banks to file insolvency petitions. (Photo: PTI)

Liquidation of companies still the most likely outcome under IBC

  • January-March quarter of fiscal 2019-20 was quite fruitful for banks in terms of stressed asset resolution and recovery under IBC, with lenders realising 64% of their dues

MUMBAI: Liquidation of companies under the Insolvency and Bankruptcy Code (IBC) continues to account for a larger share than resolution of such entities, Care Ratings said in a report, citing data from the Insolvency and Bankruptcy Board of India (IBBI).

Of the total 3,774 cases admitted for resolution under IBC, 57% continue to still remain in the resolution process and 914 have ended in liquidation (24% of the total cases admitted).

According to the data, around 9% of cases have been closed on appeal or review or settled and 4% have been withdrawn under Section 12A of the IBC.

Mint reported on 20 May that the January-March quarter of fiscal 2019-20 was quite fruitful for banks in terms of stressed asset resolution and recovery under IBC, with lenders realising 64% of their dues. This was primarily led by 23,223 crore coming from the resolution of Jaypee Infratech Ltd.

While Jaypee's insolvency proceedings began in August 2017, the resolution plan was approved just two months ago, with state-owned NBCC emerging as the successful buyer of the troubled company. The resolution plan for Jaypee Infratech, however, has been challenged in the National Company Law Appellate Tribunal (NCLAT).

“The number of cases admitted for corporate insolvency resolution processes (CIRPs) over the last 11 quarters has increased significantly and has been generally increasing every quarter, with a major portion of these cases being admitted over the last eight quarters, thereby highlighting the rising acceptance of IBC as an effective debt resolution mechanism," Care Ratings said.

The cumulative share of operational creditors, the report said, increased to 56% at the end of Q4 FY20 from 51% at the end of Q1 FY20, while financial creditors’ share remained at a similar level as of end of Q1FY20. The manufacturing sector accounts for the highest share at 40% of the overall cases followed by real estate (20%), construction (11%) and trading sectors (10%).

The sectors have remained constant compared with the previous quarter.

“In the past, recovery rate in India was as low as 26 cents to one US dollar. Post implementation of the IBC, the overall recovery rate till date in India has improved to 45.9%," the report said.

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