We didn't expect flood of insolvency cases, says IBBI chairman M S Sahoo

Around 200 insolvency resolution applications have been filed since the suspension on provisions of the Insolvency and Bankruptcy Code (IBC) ended on March 24, M S Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI), said on Wednesday.

“We did not expect that there would be a flood of cases after the (end of) suspension. Now numbers show the same,” Sahoo told Business Standard.

He also said that not many applications had been filed under the prepackaged scheme brought in for micro, small and medium enterprises (MSMEs). The IBBI, however, is holding awareness programmes for banks to promote the prepackaged scheme for the resolution of stressed assets of MSMEs.

Sahoo said the reason for the fewer applications was the increase in the default threshold to Rs 1 crore, and also the availability of other options such as moratorium available to companies.

“People know that if they start the process and there is no resolution, the company will go into liquidation. It would not help anyone. Uncertainty of outcomes also explains why there are fewer filings,” Sahoo said.

He also said Indian companies were not as leveraged as firms in many other countries.

So far 48 per cent of the corporate insolvency resolution processes have ended up in liquidation. Only 13 per cent have received approval of the resolution plan while 16 per cent were withdrawn. The remaining applications were appealed, reviewed or settled.

As of March 2021, 4,376 CIRP applications were admitted. Of these more than 1,700 were still ongoing and 2,653 had achieved closure, according to the IBBI data.

An amendment to the IBC under section 10A in the light of the pandemic had given protection to companies from defaults for up to one year, starting March 25, 2020.

The government expects the IBC activity to pick up once the economy comes back on track. “People do not want to gamble right now,” Sahoo added.