Tag: financial creditors

Majority of IBC resolutions ending in liquidation were with BIFR, BFSI News, ET BFSI

Personal Finance

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About 75 per cent of the corporate insolvency resolutions ending in liquidation were earlier with the Board for Industrial and Financial Reconstruction (BIFR) or defunct.

These companies on an average had assets valued at around 7 per cent of the outstanding debt amount, according to the latest Insolvency and Bankruptcy Board of India data.

There have been concerns raised in certain quarters about the number of companies going into liquidation and steep haircuts taken by creditors under the Insolvency and Bankruptcy Code (IBC), which has been in force for nearly five years.

Value erosion

Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but economic value in majority of the cases had eroded even before commencement of the corporate insolvency resolution process, according to IBBI.

A total of 4,541 CIRPs (Corporate Insolvency Resolution Process) were initiated till end of June and out of them, 2,859 were closed.

Out of them, 1,349 CIRPs ended in liquidation while 396 ended in approval of resolution plans, as per the latest quarterly newsletter of the IBBI.

“The economic value in most of these corporate debtors had almost completely eroded even before they were admitted into CIRP,” the IBBI said.

Of the 396 corporate debtors rescued through resolution plans, 127 were in either BIFR or defunct, according to IBBI.

Realisation by creditors

“Till June 30, 2021, realisation by FCs (Financial Creditors) under resolution plans in comparison to liquidation value is 167.95 per cent, while the realisation by them in comparison to their claims is 36 per cent. It is important to note that out of the 396 CDs rescued through resolution plans, 127 were in either BIFR or defunct,” the newsletter added.

Around 51 per cent of the CIRPs were triggered by Operational Creditors (OCs) while nearly 43 per cent were initiated by FCs.

“However, about 80 per cent of CIRPs having an underlying default of less than Rs 1 crore, were initiated on applications by OCs, while about 80 per cent of CIRPs, having an underlying default of more than Rs 10 crore, were initiated on applications by FCs,” it noted.

According to the newsletter, the share of CIRPs initiated by CDs is declining over time and they usually initiated the process with very high underlying defaults.



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47% closed cases under IBC end in liquidation, many due to value erosion, BFSI News, ET BFSI

Personal Finance

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Nearly 47 per cent or 1,349 cases closed under the insolvency law ended up in liquidation till the end of June this year but economic value in majority of the cases had eroded even before commencement of the corporate insolvency resolution process, according to IBBI.

A total of 4,541 CIRPs (Corporate Insolvency Resolution Process) were initiated till end of June and out of them, 2,859 were closed. Out of them, 1,349 CIRPs ended in liquidation while 396 ended in approval of resolution plans, as per the latest quarterly newsletter of the Insolvency and Bankruptcy Board of India (IBBI).

Liquidation

“About 47 per cent of the CIRPs, which were closed, yielded orders for liquidation, as compared to 14 per cent ending up with a resolution plan. “However, 75 per cent of the CIRPs ending in liquidation (1,011 out of 1,349) were earlier with Board for Industrial and Financial Reconstruction (BIFR) and / or defunct. The economic value in most of these CDs (Corporate Debtors) had almost completely eroded even before they were admitted into CIRP.

“These CDs had assets, on average, valued at around 7 per cent of the outstanding debt amount,” the newsletter said. In recent times, there have been concerns raised in certain quarters about the number of companies going into liquidation and steep haircuts taken by creditors under the Insolvency and Bankruptcy Code (IBC), which has been in force for nearly five years. IBBI is a key institution in implementing the Code.

Realisation by creditors

“Till June 30, 2021, realisation by FCs (Financial Creditors) under resolution plans in comparison to liquidation value is 167.95 per cent, while the realisation by them in comparison to their claims is 36 per cent. It is important to note that out of the 396 CDs rescued through resolution plans, 127 were in either BIFR or defunct,” the newsletter added.
Around 51 per cent of the CIRPs were triggered by Operational Creditors (OCs) while nearly 43 per cent were initiated by FCs.

“However, about 80 per cent of CIRPs having an underlying default of less than Rs 1 crore, were initiated on applications by OCs, while about 80 per cent of CIRPs, having an underlying default of more than Rs 10 crore, were initiated on applications by FCs,” it noted. According to the newsletter, the share of CIRPs initiated by CDs is declining over time and they usually initiated the process with very high underlying defaults

Also read the latest developments in IBC



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About 96% of Rs 2.45 lakh crore recovered under IBC resolutions came from top 100 accounts, BFSI News, ET BFSI

Banking & Finance

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Amid the rising furore over huge haircuts taken by lenders in high-value resolutions under the Insolvency and Bankruptcy Code, the government has said that financial creditors, including banks, realised Rs 2.45 lakh crore from approved resolution plans for 394 corporate insolvency resolution cases under the Insolvency and Bankruptcy Code as on June 30.

Of which Rs 2.37 lakh crore came through approved resolution plans of top 100 CIRPs, which is over 36 per cent of the admitted claims.

About 4,540 cases were admitted for the corporate insolvency resolution process under IBC until June 30, 2021.

About 240 companies liquidated till December 2020 had outstanding claims of Rs 33,086 crore, while their assets were valued at Rs 1,099 crore.
Overall, banks recovered Rs 14.18 lakh crore during the last three fiscals, raising the percentage of recovery to their gross NPA from 13.1 per cent in FY18 to 15.1 per cent in FY19. However, the recovery ratio has dropped 12.8 per cent in FY21 from 15.8 per cent in FY20 in the backdrop of the pandemic.

Recovery rate

The recovery rate of IBC has fallen to 39.3% as of March 2021 from 46% as of March 2020. Of the total outstanding amount of Rs 1.32 lakh crore, only around Rs 25,944 crore was recovered in fiscal 2021, or a rate of 19.7%.

There has been a delay in the liquidation of companies. As of December 2020, around 69% of the liquidations were going on for more than one year, while in the case of 26% of companies the process was on for more than two years.

Economic downturn

With huge capacity unutilised in the economy, companies are not looking to add more capacity, which is impacting the sale process at IBC. Barring sectors like steel where the product cycle has seen a turnaround, assets in other sectors such as textiles are not seeing much interest. While steel assets such as Essar Steel and Bhushan Steel were snapped up, those such as Alok Textiles were sold for much less.

The pandemic has increased operational challenges for the various parties involved in a CIRP, which resulted in limited cases yielding a resolution plan. The suspension of new proceedings under the IBC for the entire FY21 resulted in a sharp slowdown in the resolution process.

The slow judicial process in India allows the resolution processes to drag on, this was the same reason for slow recovery under SICA or RBBD.

Litigations by promoters not wanting to let the company out of their hands is also delaying the IBC process.

Lenders wanting to avoid delay in the recovery process and erosion of value are striking settlement deals with promoters, which defeats the purpose of the legislation.

Fiscal 2022 hopes

Financial creditors could realise about Rs 55,000 crore to Rs 60,000 crore in FY2022 through successful resolution plans from the IBC, estimates rating agency Icra. The higher realisation by the financial creditors would depend on the successful resolution of 8-9 big-ticket accounts, with more than 20% of estimated realisation for the year could be from these alone.



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