80% of resolved IBC cases in liquidation

Almost two years after the inception of the Insolvency and Bankruptcy Code (IBC), 212 companies have ended up in liquidation. These comprise almost 80 per cent of all those companies that have completed the IBC process. On the other hand, companies have found new buyers in 52 cases.

In 30 of these 212 cases of liquidation, the resolution value proposed was greater than the liquidation value. This implies that in all these cases, the committee of creditors decided to liquidate the company and take a deeper haircut on their loans rather than go for a higher offer by the bidders.

Data provided by CARE Ratings shows that in 136 such cases, the companies owed ~576.38 billion to their financial and operational creditors. In comparison, the liquidation value of these companies was estimated at ~48.17 billion or 8.4 per cent of total claims.

Data up to the end of September 2018 shows that of the total 1,198 cases that have been admitted into insolvency proceedings so far, 816 are undergoing resolution. And while the IBC had envisaged finishing the process preferably under 180 days, and in exceptional circumstances under 270 days, nearly half the cases have dragged beyond the deadline. While 158 cases have breached the 180- day deadline, another 238 cases have exceeded the 270-day period.

“Under such circumstances, the number of cases facing liquidation will see a significant increase in the next few quarters,” says a report by Kotak Institutional Equities.

These cases, however, do not include 118 cases that are under various stages of review or appeal.

Of the 52 cases that have been resolved, data from IBBI shows that creditors have so far recovered ~584 billion as against total claims of ~1.26 trillion. This works out to a haircut of 54 per cent (~682 billion).

But, the IBBI misreported data in the case of Kohinoor CTNL Infrastructure Company, which was resolved in Q4FY18. Correcting for that brings down the recovery rate to 45.3 per cent, instead of 54 per cent.

The second quarter of FY19 saw financial creditors take one of the worst haircuts. Of the total unpaid lending of ~404 billion, financial creditors lost ~298 billion or 73.7 per cent.

The best recovery from the process was made in Q1FY19, when financial creditors needed to take a haircut of 43.7 per cent, which added up to ~333 billion.

In another trend, the number of companies going through voluntary liquidation has also seen a rise over the past two quarters. Over the two years, 269 companies have applied for voluntary liquidation. But, closure of these cases is also seen to be time-consuming, shows data. Of the 269 cases admitted for voluntary liquidation, only six had been closed by the end of Q2FY19.