At least 18,629 applications of distressed companies with debt worth over Rs 5.89 lakh crore (trillion) which filed for bankruptcy process were resolved before getting admitted under the Insolvency and Bankruptcy Code (IBC), as per the Economic Survey 2021-22.
“Till September 2021, 18,629 applications for initiation of corporate insolvency resolution process (CIRPs) of corporate debtors (CDs) having underlying default of Rs 5,89,516 lakh crore were resolved before their admission,” said the Economic Survey released by Finance Minister Nirmala Sitharaman.
It further said, “Distressed assets have a life cycle and their value gradually declines with time. The fact that a CD may change hands has changed the behaviour of debtors.
Thousands of debtors are resolving distress in the early stages of distress, either when the default is imminent, on receipt of a notice for repayment but before filing an application, after filing the application but before its admission, and even after admission of the application, and making best effort to avoid consequences of the resolution process.”
This lays emphasis on the objective of the IBC process to serve as a mechanism to push resolution of stressed assets.
The Code has opened possibilities of the resolution, including merger, amalgamation and restructuring of any kind, which often requires professional help, the Survey further said.
Global and domestic investors are keenly eyeing India's distressed market in an opportunistic manner.
Further, since the law was passed in 2016, about 421 companies realised Rs 2.55 lakh crore through resolution plans under the IBC framework. This is 172% of the realisable value at Rs 1.48 lakh crore when they entered IBC process.
Cumulatively, the firms owed Rs 7.94 lakh crore to creditors.
Though recovery is incidental under the Code, the financial creditors (FCs) recovered 32.11% of their claims, which reflects the extent of value erosion by the time the CDs entered CIRP, yet it is the highest among all options available to creditors for recovery, the Survey said.
These firms took on average 428 days for the conclusion of the process.
Till September last year, 264 firms have also been completely liquidated and around Rs 1,983 crore was realised through the liquidation of these companies.
Additionally, the Economic Survey has pointed out the need for a standardised framework for Cross-Border insolvency.
Adopted by 49 countries by now, this law “addresses the core issues of cross border insolvency cases with the help of four main principles”: access, recognition, cooperation and coordination.