Creditors expect increase in realisations through IBC despite hiccups
New Delhi [India], May 19 (ANI): Innumerable litigations, defiant promoters, failing sectors and over-burdened National Company Law Tribunals (NCLTs) have negatively impacted corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) over the past two years, according to investment information and credit rating agency ICRA.
ANI
May 19, 2019 09:54 IST
New Delhi [India], May 19 (ANI): Innumerable litigations, defiant promoters, failing sectors and over-burdened National Company Law Tribunals (NCLTs) have negatively impacted corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) over the past two years, according to investment information and credit rating agency ICRA.
Still, the process has chugged on, albeit at a slower pace than envisioned. Till the close of the financial year 2018-19 on March 31, a total of 715 cases of defaulting corporate debtors had been closed under the IBC.
Of these, a significant portion of corporate debtors (378 cases) was ordered into liquidation while only 92 yielded a resolution plan where companies continue to operate as going concerns. During the last financial year, cases resolved under the IBC include Electrosteel Steel, Monnet Ispat Ltd and Amtek Auto Ltd.
But the number of cases being admitted by the NCLT continues to increase quarter-on-quarter with the highest admissions of 359 cases reported in January to March (Q4 of FY 2019), said ICRA in a research paper.
"As the timelines for insolvency resolution process continue to get stretched, with 32 per cent of on-going cases as on March 31 having already crossed the maximum allowed time of 270 days, the number of admitted cases yet to be resolved is only increasing," it said.
Despite these hurdles, ICRA expects the number of cases being admitted to NCLT to increase, especially from operational creditors which are responsible for 50 per cent of all cases admitted.
"ICRA estimates that financial creditors will realise more than Rs 80,000 crore in FY 2019-20 from the IBC compared to about Rs 66,000 crore realised in FY 2018-19. The higher realisation in FY20 will be driven by the expected conclusion of corporate insolvency resolution processes of two large accounts -- Essar Steel Limited and Bhushan Steel and Power Limited (BSPL)."
The resolution plan of Essar Steel has been approved by the NCLT but is still being litigated at higher courts. The resolution of Bhushan Steel and Power has also been marred by litigations and is now awaiting the final nod from the NCLT.
Both these accounts are part of the Reserve Bank of India's (RBI's) list of 12 largest defaulting companies announced in June 2017.
"Successful completion of corporate insolvency resolution processes for these two accounts would bring closure to eight companies from the RBI's list and could help strengthen the confidence in IBC, despite significant delays with most of these processes lasting more than 500 days," said ICRA's Vice President and Co-Head for Corporate Ratings Abhishek Dafria.
In April 2019, the Supreme Court cancelled the February 2018 circular of RBI which directed banks to recognise one-day defaults by large corporates and refer large defaulting entities (with loans exceeding Rs 2,000 crore) to the NCLT if a resolution plan was not in place 180 days after the default.
The RBI's circular would have channelled resolution process of defaulting corporate debtors through the framework set by IBC, and thereby encouraged creditors to approach the NCLT at an early stage of default. The apex court's decision is a blow to the IBC.
"It is important for the RBI to find a new mechanism to ensure that resolution of stressed assets happens in a disciplined manner," said ICRA.
As of March 31, the number of cases undergoing insolvency resolution processes had increased to 1,143. In order to improve the overall efficiency of the process, more steps are desired. The recent decision to set up two more NCLT benches at Amaravati in Andhra Pradesh and at Indore in Madhya Pradesh is a step in the right direction.
"Over the long run, the IBC will continue to play an important role in the country's economy as long as key stakeholders remain proactive in disbursing their duties and continue to have confidence in the process," Dafria said. (ANI)
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