A joint study by ASSOCHAM-Crisil has noted a respectable recovery rate of 43 per cent and resolution of Rs 75,000 crore for 94 stressed assets as on March 31, 2019. This recovery comes against total claim of Rs 1,75,000 crore financial creditors admitted under the Corporate Insolvency Resolution Process (CIRP) approved by the National Company Law Tribunal (NCLT).
The study titled, ‘Strengthening the code,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with rating firm Crisil there by highlights that adherence to IBC (Insolvency and Bankruptcy Code) timelines still remains a challenge.
The study also noted that had these 94 cases undergone the liquidation process, the recovery rate for financial creditors would have been 22 per cent which is significantly lower than the recovery rate through normal resolution process.
According to the study as on March 31, 2019, there were 1,143 cases outstanding under CIRP, of which resolution in 32 per cent of the cases was pending for more than 270 days.
The report however said that given the development and the amendments the stressed assets resolution framework in the country is still a work in progress.
The study lists the key issues and challenges that need to be addressed for successful implementation of IBC over the medium term:
1. Adherence to time-bound resolution critical – For this to be successful, various stakeholders need to work constructively together.
2. Judicial infrastructure – An immediate ramp-up of NCLT and NCLAT infrastructure, digitization of both these platforms, proactive training/on-boarding of judges, lawyers and other intermediaries will be necessary for effective implementation of the code.
3. Role of committee of creditors (CoC) – The CoC must work dynamically with resolution professionals to revive the company and should be better equipped through various training programmes to handle professional challenges. Further, logistical challenges need to be addressed to deal with large number of participants attending the CoC meetings in order to have a constructive decision oriented discussion.
4. Creditor classification & prioritizing their claims – More clarity on the mechanism is need of the hour.
5. Limited number of information utilities (IUs) – Technological infrastructure needs to be strengthened to avoid any kind of data loss and to maintain confidentiality.
6. Liquidation under a ‘going concern’ basis – To maximize value and stakeholders’ interest the IBC framework for liquidation under a ‘going concern’ basis needs to be explored further and should be followed in true spirit.
7. Market for secondary assets – An active secondary market and funding from banks could foster entrepreneurial interest, helping in faster redeployment of these assets and ensuring better price discovery.