The outbreak of the Covid-19 pandemic and its related effects in FY2021 battered the prospects for stressed asset resolution. The pandemic has increased operational challenges for the various parties involved in a corporate insolvency resolution process (CIRP), which resulted in limited cases yielding a resolution plan. Further, the suspension of new proceedings under the Insolvency and Bankruptcy Code (IBC) for the entire fiscal resulted in a sharp slow-down in the resolution process. Accordingly, the realisation for financial creditors from the resolution of CIRPs under the IBC declined significantly in FY2021 with a total resolution amount of ~Rs. 260 billion, almost a quarter of the realisations in FY2020.
Commenting on this, Mr. Abhishek Dafria, Vice President and Group Head – Structured Finance, ICRA, says, “As per our estimates, the financial creditors could realise about Rs. 550-600 billion in FY2022 through successful resolution plans from the IBC. However, the increase in the resolution amount in FY2022 would depend on the expected resolution of a large housing finance company which is awaiting the NCLT’s approval but is also under litigation in the higher courts. Additionally, in FY2022, the realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, as more than 20% of ICRA’s estimated realisation for the year could be from these alone. However, large accounts mostly see a very high level of delay in closures due to litigations, which is a concern. Further, if the second wave of the pandemic does not subside soon, it could have a bearing on our estimates as the difficult operating environment may result in a slowdown in the resolution process, especially for smaller- sized entities, and would also result in an increase in the haircuts for the lenders.”
The CIRPs under the IBC have been affected over the years by the overburdened National Company Law Tribunal (NCLT), innumerable litigation, defiant promoters and failing sectors. Even with such challenges, the IBC process has shown significant progress. From its commencement in December 2016, 4,376 CIRPs have been admitted, of which 2,653 were closed till March 2021.
ICRA believes that there have been some positive outcomes from the presence of the IBC despite the delays that are becoming common. About 40% of the cases admitted by the NCLT were closed on appeal/ review or settled or withdrawn under Section 12A which highlights that at least some promoters have been more willing to pay their dues to keep the IBC proceedings at bay. For CIRPs that have yielded a successful resolution, the financial creditors have realised / are expected to realise an average 39% of their claims while the realisation value, in comparison to their liquidation value, stands at 180%.
“Nonetheless, the extent of cases being referred to liquidation remains high at about 40% and only a quarter of such cases have seen the liquidation process come to a conclusion. The average realisation through liquidation has been a mere ~3% of the claim amount. Improving the turnaround time for successful resolution and finding enough interest in defaulting assets from external parties in the current environment will remain the key challenges for a while,” adds Mr. Sankha Subhra Banerjee, Assistant Vice President and Sector Head, ICRA
- Molbio’s Nipah test kit gets DCGI approval - September 9, 2021
- 61 test negative for Nipah so far: Kerala Health Minister Veena George - September 9, 2021
- RT-PCR accounted for over 70 percent tests conducted in Delhi in last five months - September 9, 2021
- Punjab govt to open 300 new Opioid Assisted Treatment centres to tackle drug addiction - September 9, 2021
- Over five crore people vaccinated in Madhya Pradesh so far - September 9, 2021
- BMC issues new Ganpati festival norms – No pandal darshan, curbs on yatra participants across Mumbai - September 8, 2021
- Early screening & risk assessment through breakthrough technologies - September 8, 2021
- 30 test negative for Nipah so far: Kerala Health Minister Veena George - September 8, 2021
- 88 oxygen generation plants functional in MP, says CM Shivraj Singh Chouhan - September 8, 2021
- Efforts grow to stamp out use of parasite drug for COVID-19 - September 8, 2021