Around 77 % companies liquidated under IBC were already defunct, says Economic Survey

According to the Survey, over 3000 companies have emerged out of the Corporate Insolvency Resolution Process (CIRP) as of March 2024

The Economic Survey of India which was made available on July 22 revealed that around 2,476 companies went to liquidation under the Insolvency and Bankruptcy Code (IBC) as of March 2024.

"Around 77 per cent of these corporate debtors were defunct at the beginning of the process and were, on average, valued at 7 per cent of the outstanding debt," the survey said.

According to the survey, liquidation gives the last window of opportunity for the revival of a company. It said "Around 50 businesses have been rescued at this last resort. 586 firms were dissolved at the end of the liquidation process, releasing whatever resources were needed for alternate uses."

The IBC was introduced to strengthen the corporate insolvency regime. The code introduced timeframes for resolving corporate insolvencies. The survey revealed that the eight years since it was introduced in 2016, 31,394 corporate debtors involving a value of Rs 13.9 lakh crore have been disposed of (including pre-admission case disposals) as of March 2024

Threat of loss of control pushing promoters to settle cases:

As per the IBC, the control of the company, once admitted to resolution process will be taken from the existing management and will be given to the creditors of the company. The report noted that this threat has driven promoters to settle cases even before the National Company Law Tribunal (NCLT) could pass an order in the case.

It said "The loss of control immediately after admission into the resolution process has led debtors to settle with creditors as soon as the applications are filed..... A singularly notable fact is that Rs 10.2 lakh crore of underlying defaults were addressed at the pre-admission stage."

The survey noted that the change in debtor behavior is a big boon to the banking sector. It said "The Code has created an optimal incentive-disincentive mix to facilitate above-board and transparent dealings in creditor-debtor relations."

IBC brought Rs 3.36 lakh crore realisable value in 8 years

According to the Survey, over 3000 companies have emerged out of the Corporate Insolvency Resolution Process (CIRP) as of March 2024. IBC, which was introduced in 2016, uses the CIRP to resolve and rescue a company from its financial burdens.

The Survey said "IBC has facilitated the successful closure of 4,131 CIRPs until March 2024. 3,171 corporate debtors have been rescued, of which 947 cases have been resolved through approved resolution plans, which brought in a realisable value of Rs 3.36 lakh crore."

According to the Survey, creditors recovered approximately 32 per cent of their claims in these case. This amounted to a recovery of 85 per cent of the fair value and 162 per cent of the liquidation value of asset.

3000 businesses emerged out of CIRP :

"More significant to the real sector is that over 3,000 businesses have emerged out of the CIRP, with continued business operations extending the productive use of resources trapped due to financial distress in these corporate debtors," the survey said.

It further stated that a study conducted by Indian Institute of Management (IIM) Ahmedabad showed that companies that recovered from the CIRP witnessed a significant improvement in their performance terms of increase in tangible assets and average capex.. It said " the aggregate market valuation of resolved firms rose from around Rs. 2 lakh crore in the pre-resolution phase to ₹6 lakh crore in the post-resolution phase." Furthermore, there has been a substantial after the resolution.