The research wing of Insolvency and Bankruptcy Board of India has suggested an online platform for sale of stressed assets to bring in more transparency and better price discovery.
In its assessment report on Corporate Insolvency and Resolution Timeline, it said the platform can be prepared on similar lines as investindia.gov.in specifically for stressed assets undergoing insolvency with more user-friendly filters such debt size, location and sectors.
The research has pointed out that for every one case resolved under the Code, four cases end up in liquidation. In about 25 per cent of the cases CoC (Committee of Creditors) rejected a resolution plan and pushed company into liquidation due to high haircuts and presence of single bidder.
The survey also found that creditors constantly demanded less than 25 per cent of haircut. They are more interested in getting upfront payments and recovering their dues than suggesting operational turnaround of the company.
This may not be conclusively true, but this surely indicates that relevant enquiry needs to be done in this regard, said the study.
Most companies are pushed into liquidation merely due to delayed timelines. Even though about 25 per cent of the companies had a resolution plan, they were liquidated due to non-approval of the plan by CoC as the price quoted in the plan is lower than the liquidation value. This is one of the reasons for each one company being resolved, four seems to be pushed towards liquidation, said the report.
Speed is of essence for the success of the Code. About 64 per cent of the delay in resolution process is due to approval from CoC and NCLT.
Though there have been a few empirical studies on the delay, they pertain strictly to the delay at NCLT. The insolvency process under the IBC has about 18 stages and many of which have no role of the Adjudicating Authority.
The research finds that delay in insolvency process is largely due to inadequate capacity of NCLT, difficulty in marketing stressed assets, non-cooperation by corporate debtors and improper documentation model of companies.
Constant delays in the implementation of the Code can be mitigated if mandatory timelines are inserted at every stage of insolvency process. Insertion of such segmented timelines will seek to change the behaviour of courts in implementing such procedures strictly, it said.
Research indicates that though resolution professionals can approach courts on non-cooperation of corporate debtors, only three per cent of them have filed such an application.
Nadiya Sarguroh,Senior Associate MZM Legal, said as per recent stats until last June only 250 firms have been fully resolved under the CIRP.
“If an approved resolution plan is challenged in court and the appeal fails there should be a codified penalty on appellants to deter people from unnecessarily causing delay,” she said.