The key aim of the Insolvency and Bankruptcy Code (IBC) is resolution and revival of stressed assets. However, an analysis of companies that have completed the Corporate Insolvency Resolution Process (CIRP) till December reveals that liquidation orders were passed for as many as 30 companies. This is three times the number of 10 cases for which resolution was approved at the culmination of the CIRP, as per latest data available with the Insolvency and Bankruptcy Board of India.
This is one of the key reasons the government has created a special dispensation for the Micro, Small and Medium Enterprises under the IBC, allowing the existing promoters, excluding wilful defaulters, to bid for their companies undergoing CIRP. Since MSMEs find it difficult to attract resolution applicants, in most cases, it is the existing promoter or another MSME player who bids for the company under resolution.
The liquidation is been largely initiated by a majority of creditors voting for winding up the company. Out of the 30 companies for which the various benches of the National Company Law Tribunal (NCLT) have passed liquidation orders, nine went for liquidation on account of rejection by the Committee of Creditors. In eight cases, resolution plans were rejected by a majority of creditors with a voting share of above 80 per cent.
While the 12 large cases under the IBC resolution account for nearly Rs 3.2 lakh crore worth of unpaid loans or non-performing assets, the MSMEs being large in numbers face higher chances of liquidation. A total of Rs 4 lakh crore worth of claims have been admitted under the IBC. With the Reserve Bank of India tightening default rules in February, more cases are expected to be put through the CIRP going forward. A senior finance ministry official said banks are expected to initiate CIRP for a total of another 39 medium to large companies soon.
In contrast to the 30 companies that are going through liquidation, resolution in the first ten cases under the IBC showed that until December 2017, financial creditors were able to recover 33.53 per cent of total claims outstanding from the defaulting borrowers. The financial creditors could recover Rs 1,854.40 crore out of the total claims of Rs 5,530.30 crore from companies including Synergies Doorey Automotive, Shree Metalik, Kamineni Steel & Power India, Shirdi Industries, among others.
Among the 12 large companies, Bhushan Steel is the only company for which resolution has been completed so far, with a Tata group company acquiring it for Rs 36,500 crore – about 65 per cent of the outstanding amount that the steel major owned to the lenders. Even in this group, 3-4 companies are expected to go through liquidation.
IBC ordinance promulgated
New Delhi: President Ram Nath Kovind on Wednesday gave his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, aimed at protecting the interests of homebuyers and enabling smooth resolution of stressed firms. The Ordinance provides relief to home buyers by recognising their status as financial creditors. With the changes, promoters of MSMEs will be able to bid for their companies undergoing resolution.—ENS