A large number of cases under the Insolvency and Bankruptcy Code (IBC) are going into liquidation. But this not a big concern. Many stakeholders say lack of clarity and delay in the liquidation process are more critical issues.
Of the 715 corporate default cases which have seen some kind of closure under the Insolvency and Bankruptcy Code (IBC), more than half (378) have gone into liquidation, raising concern over the effectiveness of the new insolvency law.
Though liquidation is a 'legitimate' form of closure under the IBC process, the main objective of the new law was revival of defaulting companies. The fact that a large number of companies are going for liquidation raises concerns regarding erosion of asset value and job losses.
M.S. Sahoo, the Chairperson of the Insolvency and Bankruptcy Board of India (IBB), says it is not that big a concern yet as most companies which have gone into liquidation were either already defunct or under the Board for Industrial and Financial Reconstruction (BIFR). The data published by the IBBI till March 2019 shows that of the 378 companies sent for liquidation, 283, or 75 per cent, were already defunct or under BIFR. Economic value of most of these companies had eroded even before the IBC proceedings were initiated. Under liquidation, a company is closed down and its assets sold to clear the dues. In 314 cases, the resolution value was less than the liquidation value.
Not the End Game
The IBBI quarterly report points out that liquidation itself does not mean closure of the case. Of the 378 companies referred for liquidation, only six have been closed after dissolution. The final report has been filed in 16 cases, and the rest 356 are still ongoing.
"Liquidation is a complicated process and there are no strict timelines. Though regulations say it should be completed in two years, one can carry on the process beyond the timeline," says Sanjeev Ahuja, Founder Director, Ensemble Resolution Professionals Private Ltd., an Insolvency Professional Entity.
Of the six cases in which the liquidation process has been completed, only in one -- Abhayam Trading Ltd. -- has some amount been recovered. Against admitted claims of Rs 11 crore, and liquidation value of Rs 81 lakh, stakeholders received only Rs 71 lakh. In all other cases, the recovery was zero. In case of Ghotaringa Minerals, the total admitted claims were Rs 4,662 crore but creditors could recover nothing after the liquidation process.