Corporate insolvency filings reduce in Q1FY22, after lifting of moratorium

Resolution numbers encouraging

Not only has the June quarter this year seen a resumption of new bankruptcy cases being filed, but has also seen some encouraging resolution numbers, thanks to some big-ticket cases which had been pending for a long time and were resolved during this three-month window.

Dewan Housing Finance Company Ltd (DHFL), Videocon Group and Jet Airways are three of the most high-profile bankruptcy cases which were resolved this quarter.

In fact, the successful resolution of DHFL is a feather in the cap of India’s insolvency and bankruptcy journey, since it has seen more liquidations than resolutions so far. In the DHFL case, over 40 percent of creditors’ claims are realisable.

The latest IBBI data show that, of the 24 cases which were resolved in the quarter, claims filed by creditors of DHFL, Videocon and Jet, together accounted for nearly 96 percent of total realisable claims. In the Videocon case, the realisable amount has been under 5 percent, but in the case of Jet, it has been a little over 13 percent.

So, the DHFL resolution stands out since the average amount realisable from claims filed by creditors in the April-June quarter for all cases where resolution was achieved has been just 25 percent.

In other words, three-fourths of what creditors laid claim to was lost during the insolvency process in the quarter. The percentage of realisable claims has been better, at about 36 percent, since the inception of the Insolvency & Bankruptcy Code (IBC) in 2016.

Who filed claims?

The number of bankruptcy cases filed by the promoters of a company, which have been unable to repay creditors, has been declining over the years.

Most cases filed under IBC are now brought forward by entities which are owed large sums of money by a defaulting company. The latest data show that at least one in two bankruptcy cases in 2017 was filed by the corporate debtor (CD) or the defaulting company, but by June this year, just about 6 percent cases were filed by the CDs.

Sectors with most stress

The latest data also show that maximum corporate stress continues to be in the manufacturing and real-estate sectors. Nearly two in three bankruptcy cases which were admitted under the IBC belonged to these two sectors.

As far as liquidation of businesses is concerned, three out of four companies which were admitted for resolution, but had to be liquidated, were engaged in either manufacturing, real estate or retail trade. In the April-June quarter, 62 liquidations were ordered which entailed claims of Rs 946 crore.

IBC journey

Nearly every third company admitted for resolution under IBC since December 2016 has faced liquidation. More liquidations than resolutions could be because of the state in which most distressed companies came for resolution – many are either already defunct or have ceased operations years back.

The IBC has managed to resolve some high-profile bankruptcy cases but continues to face a fair amount of criticism for inherent flaws. Not only is the number of liquidations far more than resolutions, there also has been inordinate delay in resolving stressed companies.

Latest data show that three in four admitted cases have dragged on for more than 270 days, the deadline by which resolution should be concluded as per the provisions of the Code.

Another significant dampener in the IBC process is the continued litigation by stakeholders even after a resolution plan has been approved. In the Jet case, for instance, two appeals have been filed (by Punjab National Bank and by the employee unions) after the resolution was approved and there is still no clarity on whether the implementation plan has been stayed till these appeals are dealt with.

Now, the IBBI has proposed key reforms in the Code through tighter regulation of two key stakeholders: Resolution Professionals (RPs) and the Committee of Creditors (CoC).