Size and corporate governance do matter: That seems to be the unambiguous message India’s bankruptcy courts are giving the country’s beleaguered lenders about a year since they began the process of recovering bad loans within specific deadlines.
Since December 2016, when the new law came into force, 11% (67 cases) of the small and medium companies have already been liquidated, show data compiled by New Delhi-based Corporate Professionals. Just about 2% of the 625 companies taken to the dedicated courts have seen successful revival plans.
“Small and mid-sized companies have been liquidated mostly as they could not find interested buyers, with promoters often blamed for siphoning off the banks’ money,” said Manoj Kumar, partner, Corporate Professionals, a company that specialises in insolvency advisory. “Big cases are likely to see successful resolution plans as they have received many interesting bids within the stipulated time (270 days) expiring soon.”
“The entire IBC exercise will attain maturity with the passage of time as rules are evolving,” he said.
It is difficult to determine the exact number of jobs lost since many companies facing liquidation were not functioning prior to their admission into the corporate insolvency resolution process. Moreover, many such companies were privately held, with little financial data available on them.
An estimated 10,000 people have lost their employment in liquidated companies, according to Corporate Professionals.
“IBC has sent a strong message to errant promoters,” said Mamta Binani, a Kolkata-based resolution professional who was involved in some successful resolution plans. “In many cases, smaller companies are found guilty of misusing bank loans, which resulted in defaults. Potential bidders showed little interest in those companies enmeshed in financial irregularities.”
Of the top 12 default cases, 11 companies for which insolvency was filed, the maximum stipulated deadline for resolution will end either in April or May this year. A corporate resolution process will have to be completed within nine months.
Tata Steel has been declared the successful resolution applicant for Bhushan Steel, one of the first 12 companies taken to the insolvency courts. Monnet IspatBSE -10.36 %, Electrosteel, Binani Cement and Essar Steel have already attracted bidders keen to submit a resolution plan.
In all such companies barring Binani Cement, the sums offered are generally less than the actual financial debt.