/Bankruptcy stick helps seal 9650 cases with 3.7 lakh crore claim

Bankruptcy stick helps seal 9650 cases with 3.7 lakh crore claim

New Delhi: The fear of the bankruptcy action has helped settle over 9,650 cases involving claims of around Rs 3.7 lakh crore, with companies and their promoters settling the dues before the case was admitted in the National Company Law Tribunal (NCLT). Up to December 2019, this debt had been settled as operational creditors, such as suppliers, or financial creditors, like banks, threatened to initiate action, data with the Insolvency & Bankruptcy Board of India (IBBI) showed.

With the Insolvency & Bankruptcy Code (IBC) barring promoters from rebidding for their companies once the case is admitted in NCLT, proprietors have been more than eager to resolve cases to retain their grip over the company. One of the reasons for IBC enactment was to ensure quicker resolution and faster recovery as banks have been grappling with a record pile of bad debt.

In May 2018, when TOI had first reported on settlements, the number of cases settled before admission was 2,100 with the amount involved at Rs 83,000 crore. For financial creditors, which also include home buyers in case of residential real estate projects, NCLT had admitted claims of over Rs 3.8 lakh crore (rounded off figure) from financial creditors and the realisation was to the tune of Rs 1.8 lakh crore or around 46% of the claimed amount. This means that financial creditors took a haircut of around 54% of the claimed amount, indicating value erosion.

But it was a little less than twice the liquidation value, which was estimated at Rs 96,000 crore, IBBI data showed.

Insolvency experts have maintained that value realisation will improve as several of the 221 cases, that have been cleared under the insolvency resolution process so far, were admitted after a delay of years. With the new law settling down, the process is also expected to gather momentum as the market matures. The pandemic, by all accounts, has, however, dealt a blow, suppressing the demand and valuation for stressed assets facing insolvency action.

Bankruptcy stick helps seal 9.7k cases with 3.7L cr claim

The other advantage for creditors is quicker disposal of cases. The average time taken for resolution of 221 companies was 415 days, including the “excluded time” due to litigation in courts. Excluding the “excluded time” it worked out to 375 days, or a little over a year as against over four years in the pre-IBC era. In case of liquidation, where 914 cases were studied, the entire process is estimated to have taken 309 days.

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