In FY2024, the National Company Law Tribunal (NCLT) approved a record number of 269 resolution plans under the Insolvency and Bankruptcy Code (IBC), surpassing the previous high of 189 cases in FY2023. The notable increase can be attributed to a sharp rise in corporate debtors admitted under IBC in FY2023 (i.e. 1,263 cases) following the impact of the Covid-19 pandemic. In FY2024, the fresh admissions under IBC declined to 987 corporate debtors. The NCLT has thus been able to bring down the number of ongoing corporate insolvency resolution processes (CIRPs) to 1,920 as on March 31, 2024 from 1,953 as on March 31, 2023.
Mr. Abhishek Dafria, Senior Vice President and Group Head, Structured Finance Ratings, at ICRA, said: "It is heartening to see the increase in the number of CIRPs that are yielding a resolution plan and thus managing to keep the corporate debtor as a going concern, thereby safeguarding jobs to some degree. Nonetheless, we continue to find creditors approaching the NCLT to admit a defaulting corporate debtor with substantial delays, which results in significant erosion of assets. Further, there is an acute difficulty in closing the CIRPs in a time-bound manner, on account of litigations by the promoters or dissenting creditors as well as overburdened NCLT benches.
"In FY2024, about Rs 1.7 lakh crore of admitted claims by creditors were resolved, 13% higher than the Rs. 1.5 lakh crore recorded in FY2023, through a resolution plan under the IBC. Nevertheless, ICRA estimates that the average duration for closing a CIRP yielding a resolution plan increased to 843 days in FY2024 against 831 days in FY2023. This contributed to a worsening of the haircut that the creditors had to take through the IBC process to a steep 73% in FY2024, from the already high cut of 64%, seen in the preceding fiscal," Mr Dafria said.
In addition to the CIRPs, the NCLT also passed liquidation orders for 446 corporate debtors in FY2024 against 400 corporate debtors in FY2023. The number of CIRPs that have resulted in liquidation continues to be significantly high, at ~45% of the 5,467 closed CIRPs, since the inception of IBC. Only 17% yielded a resolution plan with the remaining cases withdrawn post NCLT admission. As on March 2024, liquidation for 960 corporate debtors had been completed wherein the creditors realised a paltry 4% of their total admitted claims.
"The objective for admitting an entity under IBC is not to recover the claims through liquidation, but for most cases, there has been no other alternative, either due to lack of bids or low valuations submitted by the bidders. More than 75% of the CIRPs that entered into liquidation had been defunct entities or were already under the Board of Industrial and Financial Reconstruction (BIFR) at time of admission under the IBC. This again demonstrates the need for creditors to approach the NCLT benches to resolve defaulting entities sooner to have a better chance of keeping the entity as a going concern. We thus fear that average recoveries for creditors will remain modest at 30-35% of the claims even in FY2025, while recovery from the liquidation process would be closer to 5%," added Mr. Dafria. |
