Experts hope 50% recovery under bankruptcy code

Insolvency professionals (IP) believe that India Inc will be able to recover more than 50% of its dues under the Insolvency and Bankruptcy Code (IBC) in the near future. IPs feel that recoveries will rise in the coming months as price discovery of stressed assets improve with more than one buyer entering the fray for purchasing these.According to data collated by city-based firms like Sumedha Management Solutions and LSI Financials Services, about 1,157 companies have been admitted to the Corporate Insolvency Resolution Process (CIRP) since implementation of the IBC in 2016 and the admission of the first company in January 2017. Of these, as many as 202 cases ended up with the commencement of liquidation, as against only 46 cases closed with resolution plan.Sumedha Management’s insolvency professional Bijay Murmuria said: “Average realisation to financial creditors has been hovering between 45-50 % now. This, I feel, can increase, as price discovery starts improving following improvement in liquidation value and increase in the number of resolution applicants.”A LSI Financial Services report seconds the view, stating that the new regime has enabled an average 45-50 % recovery rate within a short span of time. Incidentally, India’s national average recovery rate was as low as 25-28% all these years.“Improving the time span for admitting a case would ensure higher asset valuation than in case of a delay, since asset value depreciates with time. This, too, will improve the general recovery rate from the current day standard of 50%,” said Samir Bhattacharya, director, LSI Resolution (P) Ltd.Currently, cases are taking longer time to get admitted at the various benches of the National Company Law Tribunal (NCLT). As per Insolvency and Bankruptcy Board of India (IBBI) rule, a case should be admitted or rejected within the first 14 days from the date of application by the creditor. “In reality, cases are taking as long as six months to get admitted. If this can be streamlined, then more cases will see resolution,” Bhattacharya added. 66004750 The most important parameter on which the recovery rate of debt to the financial creditors depends is the value of the assets of the defaulter company in question. This apart, macroeconomic health of the sector, to which the company belongs, also plays a part in determining the recovery rate. For example, a company belonging to the iron and steel sector can fetch better value for its assets since the price of steel is improving at the moment, states the LSI Financial Services report.According to Murmuria, the company’s study on closed cases reveal “liquidation dominated resolution as companies referred to NCLT since the implementation of the IBC in 2016 were already either in Board for Industrial and Financial Reconstruction or were non-functional. This, too, will change going forward as corporates are taking steps to avoid going into insolvency.”

from Economic Times https://ift.tt/2xZwcuv