Number of cases withdrawn under Sec 12A of IBC sees a spike in Q3 FY19

An amendment in the Insolvency and Bankruptcy Code (IBC) last year to insert Section 12A which allowed withdrawal of cases admitted to the National Company Law Tribunal (NCLT) has slowly begun to make an impact.
 
At the end of December 2018, two years after the IBC came into effect, 586 cases have been settled one way or another.
 
Of these cases, 11 per cent were actually withdrawn under Section 12A, while resolution plans were approved in only 13 per cent of cases. A staggering 52 per cent of companies ended up in liquidation, while another 24 per cent cases were closed on appeal shows data from the Insolvency and Bankruptcy Board of India (IBBI).
 
In cases where resolution plans were approved, financial creditors realised only 48 per cent of their admitted claims at the aggregate level — implying a haircut of 52 per cent. However, excluding one case, the haircut in the rest rose to 62 per cent.
 
Section 12A of the IBC allows the corporate debtor another chance to make good on the default and retain control over the firm even after the case is admitted to NCLT.

 
It was believed that fear of losing control over the company may prompt the corporate debtor to propose a fresh offer to its financial creditors.
 
Under this provision, the adjudicating authority may allow the case to be withdrawn from insolvency proceedings if 90 per cent of the committee of creditors (CoCs) agrees to it.
 
Financial creditors, who form the CoC, may agree to such a proposal from the corporate debtor if the settlement amount offered is greater than the value they expect to receive through the IBC process.
 
Now, data from IBBI shows that many are availing this option. Of the 586 cases resolved at the end of December 2018, 63 cases were actually withdrawn under Section 12A. By comparison, resolution plans were approved in only 79 cases.
 
A closer look shows that the number of cases withdrawn under this provision have actually risen from 26 in Q2FY19 to 36 in Q3FY19. Over the same period, the number of resolution plans approved fell from 32 to 13.
 

In the 79 resolution plans that have been approved, as against total admitted claims of Rs 1.36 trillion, financial creditors realised only Rs 65,795 crores, implying a haircut of almost 52 per cent, shows a report by Kotak Institutional Equities.
 
But, this recovery rate is largely driven by a single case — Bhushan Steel. In this case, the total admitted claims of financial creditors amounted to Rs 56,022 crore, against which they realised Rs 35,571 crore.
 
If one was to exclude this case, financial creditors realised only Rs 30,225 crore at the end of December 2018, against admitted claims of Rs 80,106 crore, implying a haircut of 62.3 per cent.
 
The IBBI data also shows that at the end of December 2018, 898 cases were still at various stages in the resolution process. A little less than a third of these ongoing cases have crossed the 270-day deadline prescribed in the code. The average duration of resolution works out to be higher at around 313 days (for all resolved cases till 3QFY19; 350 for those resolved in 3QFY19) estimates the report by Kotak Institutional Equities.