Bankruptcy resolution: In IBC, liquidation an overwhelming outcome rather than revival

Of the total 3,774 cases admitted into CIRPs till the end of March 2020, 914 ended into liquidation, which is 24% of the total cases admitted.

A significantly greater number of cases of stressed assets that undergo resolution proceedings under Insolvency and Bankruptcy code end up in liquidation rather than being revived, the data show. Of the total 3,774 cases admitted into Corporate Insolvency Resolution Processes (CIRPs) till the end of March 2020, 914 ended into liquidation, which is 24 per cent of the total cases admitted, Care Ratings said in a report. On the other hand, only 6 per cent of the total cases were resolved. While 57 per cent of the cases still remain in the resolution process, others have either been closed or have been withdrawn.

Liquidation in a high number of cases has been done despite the fact that usually a very small portion of the recoverable amount is obtained via this medium. Of the total claims which were settled via liquidation with an admitted claim amount of Rs 592 crores in Q4 FY20, the realisable value was only Rs 1.3 crore, which was less than 1 per cent of the admitted claim amount, the report added.

The manufacturing sector accounts for the highest share at 40 per cent of the overall cases, followed by the real estate (20 per cent), construction (11 per cent) and trading sectors (10 per cent). For the 12 large accounts with outstanding claims of Rs.3.45 lakh crore compared to a liquidation value of Rs.73,220 crore, resolution plans for eight companies have been approved, while liquidation orders have been passed against two companies. 

Meanwhile, to  prevent and arrest the effect of the coronavirus on the businesses, the Narendra Modi-led government has rolled out relief measures for the IBC proceedings too. In a major announcement, the government has raised the minimum threshold to initiate insolvency proceeding to Rs 1 crore; special insolvency resolution framework is announced to be introduced for MSMEs; fresh initiation of insolvency proceedings have been suspended up to one year; and excluded Covid-19 related debts from the definition of default under the code.