As of September 2023, the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) has faced significant delays, with timelines stretching far beyond the prescribed limits. This has led to a decrease in the asset value of companies undergoing the resolution process. Since the implementation of the IBC in December 2016, creditors have realized about Rs 3.16 lakh crore from resolutions. In contrast, the latest data indicates that 67% of the ongoing Corporate Insolvency Resolution Processes (CIRPs) missed the 270-day deadline, with the average resolution time reaching a three-year high of 643 days for financial creditors and around 660 days for operational creditors.
Sector-Specific Challenges:
The aviation sector has been particularly active within the insolvency ecosystem. This includes significant cases like the voluntary insolvency resolution proceedings of Go First, which faced opposition from various lessors. The government’s amendment of norms concerning leased aircraft in response to the crisis at Go First demonstrates the sector’s impact on insolvency proceedings. Additionally, manufacturing and real estate sectors accounted for half of the total insolvency proceedings admissions.
Judicial Capacity and Resolution Rate:
A notable issue is the limited number of members in the National Company Law Tribunal (NCLT), which currently stands at 55 against a sanctioned strength of 63. The government’s appointment of 17 new members in August 2023 aims to address this. Advocates and experts suggest that increasing the sanctioned strength and filling the vacancies will enhance the disposal rate of cases. As of now, there are over 2,000 ongoing CIRP cases, with NCLT having cleared close to 190 resolution plans in 2023. There are expectations for further improvements in infrastructure and member strength in 2024.
Impact on Creditors and Recovery Rates:
Data as of June 30, 2023, shows that creditors realized Rs 2.92 lakh crore through the resolution process, against the estimated fair value of available assets at Rs 2.72 lakh crore and a liquidation value of Rs 1.74 lakh crore. The total claims amounted to Rs 9.23 lakh crore. In successful resolution cases, creditors realized about 31.82% of their admitted claims, indicating a significant haircut of around 68%.
Conclusion and Outlook:
The prolonged timeline for resolving cases under the IBC has become a major concern for investors and stakeholders. Efforts are underway to expedite these proceedings and address the challenges posed by the manpower crunch and judicial capacity issues. The next year is expected to see critical developments, including the resolution of high-profile cases like Future Retail, Go First, and Reliance Capital. There is a consensus on the need for more efficient scrutiny of insolvency petitions and a unified approach to interpreting statutory provisions to avoid prolonged litigation and conflicts.