The number of cases admitted for Corporate Insolvency Resolution Processes (CIRPs) slowed down to 161 in the first half of FY21 compared with 889 cases admitted during the same period in FY20. With this, the September quarter witnessed a drop of around 85 per cent compared with the previous year, said a CARE Ratings report. This can be attributed to the suspension of fresh bankruptcy proceedings for COVID-19 defaults.
"The number of cases admitted for CIRPs over the last 14 quarters has increased significantly, and has been generally increasing every quarter, with a major portion of these cases being admitted over the last eight quarters, thereby highlighting the rising acceptance of IBC as an effective debt resolution mechanism," the report added.
As per the notification dated September 24, 2020, the government has extended the suspension of insolvency cases against fresh COVID-19-related defaults by another three months from earlier September 25, 2020.
Around 48 per cent of the cases continue to remain in the resolution process against 57 per cent as of March 2020. A little over 1,000 cases have landed into liquidation and over two-third of these cases (around 751 CIRPs) were BIFR or non-operational companies or those where the resolution value was less than or equal to the liquidation value. Around 12 per cent of the cases have been closed on appeal, reviewed or settled and 7 per cent of the cases have been withdrawn under Section 12A-- a significant number of such cases (45 per cent) were less than Rs 1 crore, the report said. The primary reason has been either the full settlement with the applicant which has increased to 34 per cent against 24 per cent by March 2020 or other settlement with creditors. Only 7 per cent of the total cases have ended in approval of resolution plans.
In the past, recovery rate in India was as low as 26 per cent but post the implementation of the IBC, the overall recovery rate till date has improved to 43.6 per cent. The recovery for Q2FY21 has, however, dipped to 20.6 per cent, which is significantly lower than 64.1 per cent reported in the fourth quarter.
Of the total claims that were settled through liquidation with an admitted claim amount of Rs 115.7 crore in Q2FY21, the realisable value was only Rs 10.3 crore, it highlighted.