Slow and poor recovery of avoidance transactions, shows IBC data

Slow progress: Recovery of avoidance transactions less than 0.3%

Resolution professionals filed 809 applications for avoidance transactions for around Rs 2.2 trillion till September 2022. 

Of this, only 98 applications, or just about 8 per cent of the total amount, has been disposed of. The recovery is even less at 0.3 per cent, according to the latest data by the Insolvency and Bankruptcy Board of India. 

An analysis by CareEdge explained that resolution professionals can reverse any transaction entered by the debtor company before the Insolvency and Bankruptcy Code (IBC) is invoked if the RP can prove that the transaction was intended to divert funds or alienate assets.

This IBC provision is used on related party transactions, fund diversions, and other relevant corporate actions. The recovered amount is distributed among lenders, with the permission of the National Company Law Tribunal.

The number of insolvency cases increased by 24 per cent during the July-September 2022 compared to the year-ago period. The trend in the sectoral break-up of insolvency cases remained the same as previous years.