IBC redefines debtor-creditor relationship, says Economic Survey

IBC has ushered in significant behavioural changes, the survey said

Ushering in significant behavioural changes, the insolvency law has redefined the debtor-creditor relationship with more than 80 per cent of the corporate debtors getting resolved before official announcement of resolution process till September 2020, according to the Economic Survey.

The Insolvency and Bankruptcy Code (IBC) has rescued 308 corporate debtors as on December 2020 through resolution plans and they had Rs 4.99 lakh crore to creditors.

"However, the realisable value of the assets available with them, when they entered the CIRP (Corporate Insolvency Resolution Process), was only Rs 1.03 lakh crore. Under the Code, the creditors recovered Rs 1.99 lakh crore, which is more than 193 per cent of the realisable value of these CDs," the survey tabled in Parliament on Friday said.

It also noted that the recovery for financial creditors as compared to their claims, was found to be more than 43 per cent for all the years since the inception of the Code, which has facilitated the recovery of NPAs by banks.

Since enactment of the IBC in 2016, out of the 18,892 applications that were dealt with, as many as 14,884 cases involving defaults of Rs 5.15 lakh crore were withdrawn by September 2020 from various benches of the NCLT before these applications were admitted by the adjudicating authority, the survey said.

As many as 897 processes were closed mid-way by December 2020, the survey said, adding that these "figures indicate that almost 83 per cent of the corporate debtors are getting resolved on the way, before the official commencement of CIRP under the Code on account of behavioural change among the defaulting debtors".

Only 7 per cent of the corporate debtors have undergone the entire process yielding either resolution or liquidation. Remaining 10 per cent of the corporate debtors are still undergoing the process, it added.

"The Code has brought about significant behavioural changes among the creditors and debtors thereby redefining debtor-creditor relationship. The inevitable consequence of a resolution process (the control and management of the firm move away from existing promoters and managers, most probably, forever) deters the management and promoter of the firm from operating below the optimum level of efficiency.

"Further, it encourages the debtors to settle default expeditiously with the creditor at the earliest, preferably outside the Code," the survey said.

While 308 corporate debtors were rescued under the IBC, as many as 1,112 went into liquidation.

"The corporate debtors rescued had assets valued at Rs 1.03 lakh crore while the corporate debtors (for which data are available) referred for liquidation had assets valued at Rs 0.43 lakh crore when they entered the CIRP.

"Thus, in value terms, around three-fourths of distressed assets were rescued. Till December 31, 2020, 181 corporate debtors have been completely liquidated which had outstanding claims of Rs 26,251 crore, but the assets valued at Rs 598 crores. Rs 607 crore were realised through the liquidation of these companies.