Solution to insolvency lies in markets: Sahoo

Companies whose debts have been resolved under the Insolvency and Bankruptcy Code (IBC) till June had assets valued at about 22 per cent of the amount due to the creditors, Insolvency and Bankruptcy Board of India (IBBI) Chairman M S Sahoo said on Thursday.

Stressing that hair-cuts taken by lenders was not the fault of the IBC, he said creditors staring at a hair-cut of 78 per cent were not only rescued under the code but it was reduced to 61 per cent.

“The IBC is not a panacea for all ills and requires systematic and holistic assessment ... If claims and realisations are adjusted to their real level, haircut figures will be lower,” Sahoo said.

Addressing the conference on IBC, organised by the CII, Sahoo said people saying that three-fourths of the firms were getting liquidated were seeing only the end game. Of the companies proceeding for liquidation three-fourths were defunct to start with and among the firms rescued, one-third were defunct. This, Sahoo said, meant that two-thirds of the companies were defunct when they entered the IBC process.

Clearing the air on the high number of companies entering liquidation, Sahoo said the firms ending up in liquidation had assets, on average, valued at about 6 per cent of the outstanding claims. “In value terms, companies accounting for 70 per cent of these distressed assets were rescued while those accounting for 30 per cent of stressed assets proceeded for liquidation,” he added.

The IBBI chief also asked industry to try to find a solution rather than always asking the state to do so. “The way forward should be the markets. We do not have solutions to everything in the state machinery. This does not mean that the state will take the backseat,” Sahoo said.