Economic Survey 2022: Liquidation Continues To Outpace Resolution Under IBC

Even as financial creditors were able to recovery only about a third of their claims under the Insolvency and Bankruptcy Code, it remains the best way to recover debt from defaults, according to the Economic Survey of 2021-22.

Among 421 companies which were rescued under the bankruptcy law, financial creditors recovered about Rs 2.55 lakh crore, as of Sept. 30, 2021. This compares with oustanding debt of Rs 7.94 lakh crore these companies owed to their lenders. These companies had assets worth Rs 1.48 lakh crore at the time of admission.

"Though recovery is incidental under the code, the financial creditors recovered 32.11% of their claims, which reflects the extent of value erosion by the time the CDs entered CIRP, yet it's the highest among all options available to creditors for recovery," the report said.

Compared with the 421 companies which were rescued through the IBC, 1,419 companies were put under liquidation, as of Sept. 30. While these companies under liquidation had outstanding debt of Rs 7.38 lakh crore, they only had assets worth about Rs 52,000 crore on the ground, the report said.

Till September 2021, 264 companies have been completely liquidated which had outstanding claims of Rs 45,790 crore, but the assets were valued at Rs 2,025 crore. The amount realised through liquidation of these companies stood at Rs 1,983 crore.

The 421 companies which were resolved under the IBC, were under the resolution process for an average of 428 days, after excluding any time excluded by the judiciary. This compares with the ceiling of 330 days of resolution period prescribed under the IBC.

The 1,419 companies, which ended up in orders for liquidation, took on average 375 days. Further, 264 liquidation processes, which have closed by submission of final reports took on average 427 days for closure.

Interestingly, companies facing potential bankruptcy proceedings are preferring to resolve their debt related issues early, rather than facing any consequences of these proceedings. Till September 2021, 18,629 bankruptcy applications having underlying default of Rs 5.9 lakh crore were resolved before their admission, the report said.

Under Section 29A of the IBC, defaulting promoters aren't allowed to participate in the resolution process, if the companies have been classified as non-performing assets for over a year.