Liquidations outpace resolutions under IBC as recovery rates remain weak: Report

India's insolvency resolution framework continues to face execution-related challenges, with liquidation remaining the dominant closure route and recovery rates showing little improvement despite multiple regulatory reforms, according to a report by India Ratings and Research (Ind-Ra).

The agency said that while recent amendments and refinements to the Insolvency and Bankruptcy Code (IBC) are structurally positive, recovery outcomes continue to be driven largely by execution realities rather than regulatory design. As a result, meaningful improvements in creditor recoveries are likely to take time and will depend on more effective implementation of reforms.

According to Ind-Ra, the fourth quarter of FY26 reflected this trend. Fresh admissions under the insolvency process moderated to 143 cases, down from 170 cases in the previous quarter, but liquidation continued to outpace resolutions. During the quarter, 48 cases ended in liquidation compared with 36 cases resolved through resolution plans, underscoring the persistent challenges in preserving enterprise value through restructuring.

The report noted that overall recovery levels remain broadly stable at around 31% of admitted claims, indicating that while the IBC framework remains functional, it has yet to deliver a structural shift in recovery outcomes. Significant haircuts continue to characterize the insolvency process across stakeholder categories.

Recovery rates

Ind-Ra highlighted that recovery rates under Corporate Insolvency Resolution Processes (CIRPs) remain subdued across creditor classes.

Operational creditors reported a 25% realization rate from CIRPs yielding resolution plans in FY26, unchanged from FY25. Recovery rates for corporate debtors also remained stable at around 18%, reflecting limited improvement in value realization.

Financial creditors, who account for a large share of insolvency claims, witnessed a decline in recovery rates to 31% in FY26 from 33% in FY25. The agency noted that this places recoveries at the lower end of the 31%-34% range observed since FY23.

Recovery from liquidation cases remained among the lowest levels seen since FY21, reinforcing concerns about value erosion when distressed assets move toward liquidation rather than restructuring.

Positive reforms, but...

While acknowledging recent reforms aimed at improving timelines, process flexibility, and creditor-led frameworks, Ind-Ra emphasized that execution constraints continue to hinder outcomes.

Litigation-related delays and capacity limitations at the National Company Law Tribunal (NCLT) remain major bottlenecks. According to the agency, any improvement resulting from recent amendments is likely to be reflected first in procedural timelines before translating into materially better recovery rates.

The report also pointed to a gradual shift in creditor behaviour toward value preservation. The ratio of resolution approvals to liquidation orders improved to 0.9 times in FY26, compared with 0.8 times in FY25, suggesting increasing preference for restructuring over liquidation. However, the ratio remains below 1, indicating that liquidations continue to hold a significant share of case closures.

Timelines

Resolution timelines remain a major concern for the insolvency ecosystem. The average time taken for CIRP resolutions increased to 751 days for financial creditors, 756 days for operational creditors, and 629 days for corporate debtors in FY26, the highest levels recorded since FY21.

At the same time, 78% of ongoing CIRP cases remained unresolved beyond 270 days, unchanged from the previous year.

Ind-Ra expects liquidation to remain a preferred closure route in the near term, particularly for legacy stressed assets. The agency concluded that unless structural bottlenecks in execution and adjudication are addressed, recovery outcomes under the IBC are likely to remain subdued despite ongoing regulatory reforms.