Bankruptcy code fetches creditors peanuts, get only Rs 96 cr out of Rs 9,900 cr

The closure of cases through liquidation under the Insolvency and Bankruptcy Code (IBC) has seen a massive value erosion of companies. This should worry the policymakers as large number of insolvency cases are being closed through the liquidation process.

According to data collated by the Insolvency and Bankruptcy Board of India (IBBI), of the 51 liquidation cases in which final reports have been submitted till 31 December 2019, only Rs 96 crore were recovered against Rs 9,870 crore claims admitted. Of the realised amount, Rs 92 crore has been disbursed among the creditors.

Of the 551 ongoing liquidation cases, whose data was available with the IBBI, the total claim amount is Rs 4.47 lakh crore, while the liquidation value is just Rs 21,147 crore.

Under IBC, if a resolution plan is not approved by the committee of creditors within the stipulated 270 days, the National Company Law Tribunal (NCLT) can order liquidation of the defaulting company. The liquidation process had to be completed two years earlier, but now it has been shortened to 12 months.

Though the regulations now allow a defaulting company to be liquidated as a going concern, the mere order of liquidation can lead to value erosion. "You have to fight a lot of negativity when a company goes into liquidation process," says Sutanu Sinha, an Insolvency professional and the liquidator in the IVRCL case. IVRCL was ordered to be liquidated as going concern in July 2019 after the resolution plan submitted by First Global, a wealth management and PMS firm.

Out of over 3,300 cases admitted under IBC till December 2019, 780 have gone into liquidation and only 190 cases have been resolved. A resolution necessarily means the defaulting company has been able to find a buyer.

Of the 780 cases in liquidation, only 51 have seen proper closure with proceeds from asset sales being disbursed to the creditors. Of the 51 closed cases, only one corporate debtor -- Emmanuel Engineering Private Ltd -- has been liquidated as going concern.

While liquidation order itself can erode the value of assets of a company, the delay in the process causes further value erosion. Of the ongoing 725 cases, at least 22 cases have not been closed even after the earlier stipulated two years time period. As many as 250 cases have been going on for over one year.

Sinha says that due to paltry realisation under liquidation process, it has been seen that the money gets over by the time cost of insolvency process, workers' dues and financial creditors' claims are met. Corporate creditors and those below in the waterfall model get nothing.

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