IBC Redefines Debtor-Creditor Relationship, Economic Study Finds

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Introducing significant behavioral changes, the insolvency law redefined the debtor-creditor relationship, with more than 80% of corporate debtors resolved before the formal announcement of the resolution process until September 2020, according to the Economic Survey. .

The Insolvency and Bankruptcy Code (IBC) saved 308 debtor companies in December 2020 through resolution plans and they owed Rs 4.99 lakh crore to creditors.

“However, the realizable value of the assets available with them, when they entered the CIRP (Business Insolvency Resolution Process), was only Rs 1.03 lakh crore. Under the Code, the creditors have recovered Rs 1.99 lakh crore, or more than 193 per cent of the realizable value of these CDs “, indicates the poll tabled in Parliament on Friday.

He also noted that the collection of financial creditors against their claims has been higher than 43 percent in all years since the Code came into force, which has facilitated the collection of NPAs by banks.

Since the enactment of the IBC in 2016, out of the 18,892 requests that have been processed, up to 14,884 cases involving defaults of Rs 5.15 lakh crore were withdrawn in September 2020 from various NCLT benches before these requests are not accepted by the decision-making authority. , according to the survey.

Up to 897 processes were closed midway through December 2020, according to the survey, adding that these “figures indicate that nearly 83% of debtor companies are resolved along the way, before the official start of the CIRP under of the Code on account of the change in behavior of defaulting debtors ”.

Only 7 percent of debtor companies have gone through the entire process leading to either resolution or liquidation. The remaining 10 percent of debtor companies are still pending, he added.

“The Code has brought about significant behavioral changes among creditors and debtors, thereby redefining the debtor-creditor relationship. The inevitable consequence of a resolution process (the control and management of the company moves away from promoters and managers the management and promoter of the company to operate below the optimal level of efficiency.

“In addition, it encourages debtors to settle the default quickly with the creditor as soon as possible, preferably outside of the Code,” the survey said.

While 308 debtor companies were saved under the IBC, as many as 1,112 were put into liquidation.

“The debtor companies rescued had assets valued at Rs 1.03 lakh crore while the debtor companies (for which data is available) targeted by liquidation had assets valued at Rs 0.43 lakh crore when they entered the bank. the CIRP.

“So in terms of value, about three quarters of distressed assets have been rescued. As of December 31, 2020, 181 debtor companies have been completely liquidated, with unpaid debts amounting to Rs 26,251 crore, but the assets were valued at Rs 598 crore. Rs. 607 crore was realized through the liquidation of these companies.

(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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