Second wave puts brakes on insolvency resolutions
MUMBAI: India’s insolvency tribunals are hearing only a handful of cases amid the spike in covid cases, and this is going to delay the resolution of stressed assets.
The death of a National Company Law Tribunal (NCLT) judge in Delhi and the rising infections among members have shocked the fraternity. Besides, fewer banks are approaching the NCLT as they do not expect buyers to quote a reasonable price in the middle of this calamity.
“There will be a delay in filing of fresh IBC cases. Ultimately the purpose of pursuing IBC is to ensure corporate debtors find a taker at a reasonable price and, considering the current situation and the market sentiment, the lenders are wary of very discounted prices being offered,” said Ajay Shaw, a partner at DSK Legal.
As India battles a second wave of infections, shortage of medical oxygen, beds and ICUS has led to patients gasping for air, and many succumbing to the infection. NCLT benches across India are, therefore, hearing only urgent cases from April 20, said insolvency lawyers.
“While the suspension has been lifted, the judicial forum where one could have gone to have those issues addressed is overcome by the pandemic,” said Faisal Sherwani, partner at law firm L&L Partners.
“Therefore, for all practical purposes, there is no longer a prohibition on new insolvency petitions, but few cases are being heard.”
Sherwani said while in constitutional courts cases will require urgent hearing, for insolvency tribunals, most cases would not qualify for urgent hearing and waiting another six months or so, may not make a difference.
The NCLT had resumed hearings on March 25, but lawyers expect the IBC to be suspended again. However, there is no official word on it yet. Aniruddha Sen, a partner at Trilegal, said speculations were rife that the IBC suspension is likely to be extended by the government.
The IBC led to the resolution of several large stressed companies and is a preferred route for lenders. Out of the 2,422 IBC cases which were concluded at the tribunals, a staggering 1,126 were through liquidation, while only 317 had a successful resolution plan as on December 31.
In other words, around 46.5% of the total cases went for liquidation, compared to just 13.1% having a resolution plan.
“Further, due to the second wave, financial institutions are also carefully evaluating the situation and they will not take all borrowers to the IBC unless they see that the process will result in maximization of the value of assets,” said Ashish Pyasi, associate partner, Dhir and Dhir Associates.
Pyasi said the number of IBC cases shall gradually increase over the next few months. The rise, he said, will not be sudden because for defaults that occurred before the IBC suspension came into force, creditors were free to approach the NCLT in past one year, since the default was not related to Covid-19.
“For the post-suspension period, fresh defaults resulting in filing of cases will take time. Due to the Reserve Bank of India’s (RBI) moratorium and various relaxations given by banks, fresh defaults will only start now and then petitions will be filed,” said Pyasi.