Distressed assets have a life cycle and their value gradually declines over time. The fact that a CD could change hands has changed the behavior of debtors, according to the survey, tabled in parliament by Finance Minister Nirmala Sitharaman.
“Thousands of debtors resolve distress in the early stages of distress, either when default is imminent, upon receipt of a notice of repayment but before a claim is filed, after the claim is filed but before its admission, and even after the application has been admitted, and doing its best to avoid the consequences of the resolution process,” he said.
According to the survey, up to 18,629 CIRP (Corporate Insolvency Resolution Process) requests for CDs having an underlying defect of Rs 5,89,516 crore were resolved before admission till September 2021.
In addition, a total of 527 CIRPs were withdrawn under Section 12A of the Code till September 2021. Almost three quarters of these CIRPs had claims below Rs 10 crore and 701 CIRP cases were closed in appeal / review / settled, he mentioned.
On the resolution front, no fewer than 421 corporate debtor cases were resolved under the IBC in September 2021, while a total of 1,419 CDs were referred for liquidation.
According to the survey, the resolution of these 421 cases resulted in the recovery of Rs 2.55 lakh crore against the total debt of Rs 7.94 lakh crore – reflecting a success rate of over 32%.
The realizable value of the assets available with the 421 CDs saved when they entered the CIRP was only Rs 1.48 lakh crore although they owned Rs 7.94 lakh crore to creditors.
“The resolution plans realized Rs 2.55 lakh crore, or more than 172% of the realizable value of the CDs. Although recovery is incidental under the Code, financial creditors (FC) recovered 32.11% of their claims, which reflects the extent of value erosion at the time the CDs entered CIRP, but is the highest of all the options available to creditors for recovery,” said L. ‘investigation.
On the liquidation front, a total of 1,419 cases had aggregate claims of Rs 7.38 lakh crore.
“As of September 2021, 264 CDs have been completely liquidated with outstanding receivables of Rs 45,790 crore, but the assets were valued at Rs 2,025 crore. Rs 1,983 crore has been realized through the liquidation of these companies,” the survey said.
On the time and cost parameters, the 421 resolved CIRPs took an average of 428 days (after excluding the time excluded by the contracting authority) for the process to conclude.
The cost amounts on average to 0.98% of the liquidation value and 0.54% of the resolution value. The 1,419 CIRPs, which resulted in liquidation orders, took an average of 375 days.
In addition, 264 liquidation processes, which were closed with the submission of final reports, took an average of 427 days to close.
The survey also advocated simplifying the voluntary liquidation process.
“However, the company voluntary exit procedure still needs to be simplified significantly, in addition to recent progress,” he added.
Apart from simplifying the issues at different stages of the processes, there is a need to create a one-stop shop for the whole process.
A portal that combines all stages of the liquidation process, from application by companies to processing by all departments, will prove very useful, according to the survey.