If resolution takes long, recovery bound to drop

MUMBAI: There is a direct correlation between the length of the resolution process and the recovery rate, Insolvency and Bankruptcy Board of India said in a study.
According to the study, lenders recover nearly half of their funds (49.2%) in insolvency cases resolved within 330 days. In cases that take longer, the recovery rate drops to 36%, further decreasing to 26% for cases that extend beyond 600 days.Out of the 947 cases analysed, a mere 14% were resolved within the stipulated timeline of 330 days. A significant 37% took between 330 to 600 days, and the remaining 49% stretched beyond 600 days.

These delays – often triggered by litigations from multiple stakeholders with conflicting interests – not only erode the value of already distressed corporate defaulter, but also significantly reduce the recovery value to creditors, as pointed out by IBBI chairperson Ravi Mital in the board’s newsletter.
According to IBBI, 269 resolutions were approved in FY24 – a 42% increase over the 189 resolutions in FY23. The ratio of cases resolved to liquidation of cases improved from 0.46 in FY23 to 0.61 in FY24. While this is the highest-ever in any year since the inception of the IBC, the amount realised has declined. In FY24, the amount realised under cases resolved stood at Rs 48,000 crore as compared to Rs 55,000 crore in FY23.
The ratio of recovery to admitted claims also dropped to 27% from 36% last year. While the IBC saw 200 admitted cases with claims of over Rs 1,000 crore, total assets in these claims stood at Rs 44,000 crore against admitted claims of Rs 8.8 lakh crore. This means that there were only 5% assets on ground.
According to Mital, IBC’s objective extends beyond the mere recovery of creditors. “It is fundamentally geared toward the preservation of business. By prioritising resolution over liquidation, the IBC endeavours to safeguard the economic fabric by ensuring the survival and sustainability of the financially distressed entities,” he said. IIM Ahmedabad in a report had noted that resolved firms that went through the resolution process have significantly improved their performance in the post-resolution period.