Amid a crash in recovery by financial creditors in the March quarter, the Insolvency and Bankruptcy Board of India (IBBI) held a meeting with potential investors and law firms like Shardul Amarchand Mangaldas on Wednesday, to brainstorm ways to boost resolution proceeds. The meeting was chaired by new IBBI chairman Ravi Mittal, sources told FE.
“The regulator wanted to know why investor participation in stressed asset resolution isn’t up to the mark following the pandemic, and what can be done to improve the situation. It also discussed various aspects of the IBC and the delay in resolution of cases, and sought inputs on how to make the system better,” said a participant.
The meeting came days after latest data showed recovery by financial creditors from the resolution of stressed firms under the Insolvency and Bankruptcy Code (IBC) plunged to a record quarterly low of 10.2% of their admitted claims, in the three months through March. Moreover, the realisation for financial creditors dropped below the assets’ liquidation value for the first time in the March quarter.
Cumulative recovery for lenders where resolution took place dropped to just 32.9% until March 2022, from 35.9% up to September 2021, according to the data compiled by the IBBI. In absolute terms, the cumulative recovery for financial creditors until the March quarter stood at Rs 2.25 trillion.
Analysts blame the reduced market appetite for toxic assets in the wake of the pandemic — on top of inordinate delay in resolution, caused by protracted legal tussles and bottlenecks in the adjudicating system — for the poor recovery. While they conceded that the IBC shouldn’t be judged by its performance in just one or two quarters and that the universe of bidders seems to have shrunk in the aftermath of the Covid outbreak, they were unanimous in blaming the clogged NCLT (National Company Law Tribunal) system for the delay in resolution. It not just leads to asset value erosion but discourages serious suitors from bidding for the insolvent firms, for fear of losing out if the process stretches on.
As many as 66% of firms that are undergoing resolution have exceeded the 270-day limit, showed IBBI data. The IBC sets a time-frame of 180 days to resolve stress in a firm, which can be extended by another 90 days with the NCLT’s approval.
This brings to the fore lenders’ growing unease over invoking the IBC for the resolution of stressed assets and adds to the urgency of addressing systemic issues, experts have said.
