Statsguru: IBC mechanism ready to take up cases after a year-long hiatus

THE INSOLVENCY AND Bankruptcy Code (IBC) mechanism is ready to take up new corporate insolvency cases once again after a year-long hiatus, which started with the onset of the Covid-19 pandemic.

As many as 1,942 cases are currently going on under the Code (as of Septem­ber 2020). While more than 1,000 com­p­anies have been liquidated, less than 300 have seen resolution, shows chart 1.

Although the suspension — from March 25, 2020, to March 24, 2021 — was only on taking up new cases and not on carrying out existing proceedings, the number of cases gaining closure was significantly lower during this period. Chart 1B reveals that the pace of cases getting closure slowed when the economy was in trouble.

A summary analysis of about 280 resolutions and 1,025 liquidations to date shows how the IBC has worked.

For instance, a defunct company is likely to get liquidated or resolved faster than a company, which has not yet suspended operations. It took 45 days less on average to resolve a non-functioning insolvent company than a working one, chart 2 shows. Similarly, liquidating a defunct company took two months less on an average.

Chart 3 shows that financial credit­ors gained the most when they themselves invoked the insolvency process. In cases where operational creditors triggered insolvency, they realised value similar to financial cred­itors. On the other hand, liquida­tion value turned out to be the worst when financial creditors initiated the process.

An operating company has returned better liquidation value on average over the four years of IBC, compared to a defunct company, illustrates chart 4. But realisation by creditors through resolution has been more or less indifferent to the functional status of the company. This suggests that the incentive for quick resolution while the company is a going concern is small.

Chart 5 shows the average realisation by financial and operational creditors as a share of their claims across various benches of the National Company Law Tribunal. In addition, it also shows how liquidation value as a share of claims has differed across benches.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines | Source: Insolvency and Bankruptcy Board of India