Clipped from: https://www.financialexpress.com/industry/ibc-getting-more-popular-for-debt-resolution-even-as-recovery-continues-to-fall-shows-high-number-of-cases/2987128/
The numbers admitted for Corporate Insolvency Resolution Process (CIRPs) have continuously increased since the launch of IBC in 2016. On the other hand, the overall recovery rate has fallen to 30.4 per cent till Q3FY23.
IBC has been gaining greater acceptance among creditors as an effective debt resolution mechanism.
Insolvency and Bankruptcy Code (IBC) has been gaining greater acceptance among creditors as an effective debt resolution mechanism, even as the cumulative recovery rate has been on a continuous downtrend, with the haircut now as high as 70 per cent. The numbers admitted for Corporate Insolvency Resolution Process (CIRPs) have continuously increased since the launch of IBC in 2016. It registered an increase by around 25 per cent y-o-y in Q3 FY23 after reducing in the previous few quarters in FY21 and FY22, according to a report by CareEdge Ratings.
On the other hand, the overall recovery rate has fallen to 30.4 per cent till Q3FY23. “The cumulative recovery rate has been on a downtrend, decreasing from 43 per cent in Q1FY20 and 32.9 per cent in Q4FY22 as larger resolutions have already been executed and a significant number of liquidated cases were either BIFR cases and/or defunct with high resolution time, coupled with lower recoverable values,” CareEdge report said.
IBC’s popularity has continued to grow with close to 6,200 companies being admitted. On a cumulative basis till December 2022, around 2,692 cases were filed by the financial creditors and 3,133 cases by operational creditors.
The report said that after slowing during the pandemic period of FY21 and FY22, the insolvency cases increased by 25 per cent on-year in Q3FY2023. However, the number of cases admitted to the insolvency process continued to be lower in comparison to earlier quarters in FY 2019/20. The distribution of cases across sectors continues to remain similar, compared to earlier periods given the extended resolution timelines.
Out of these cases admitted into CIRP at the end of December 2022, only 10 per cent have ended in approval of resolution plans, while 32 per cent remain in the resolution process vs 35 per cent as of the end of March 2022, reported CareEdge. Also, 1,901 of the total have ended in liquidation which is 31 per cent of the total cases admitted. 76 per cent of these were either BIFR cases and/or defunct. Further, around 14 per cent (894 CIRPs) have been closed on appeal /review /settled, while 13 per cent have been withdrawn under Section 12A. Around 54 per cent withdrawn cases were less than Rs 1 crore. And the primary reason for withdrawal has been either the full settlement with the applicant or other settlement with the creditor.