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Resolution for 94 stressed assets reached Rs 75K crore with 43% recovery rate as on 31st March ’19: ASSOCHAM-Crisil study


Friday, May 03, 2019

Assets resolution framework in the country is still a ‘work in progress’
New Delhi, 03rd May 2019: With a respectable recovery rate of 43 per cent, resolution for 94 stressed assets has been reached for Rs 75,000 crore as on March 31, 2019 out of Rs 1,75,000 crore total claim of financial creditors admitted under the Corporate Insolvency Resolution Process (CIRP) approved by the National Company Law Tribunal (NCLT), noted a just concluded ASSOCHAM-Crisil joint study.
“The average resolution timeline for resolved 94 cases was 324 days vis-à-vis the stipulated insolvency resolution timeline of 270 days,” noted the study titled, ‘Strengthening the code,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with rating firm Crisil thereby highlighting 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.
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, it added.
It highlighted that there are a few big-ticket accounts for which resolution has not been finalised for over 400 days.
“This still is considerably faster than the recovery time of 3.5-4 years taken by asset reconstruction companies (ARCs),” the ASSOCHAM-Crisil report stated adding that it is also far better than the World Bank’s ‘Doing Business 2019’ report, which pegs the recovery timeline for stressed assets in India at 4.3 years.
It further said that IBC is a key reform in the path of strengthening identification and resolution of insolvencies in India and in an expedited manner. “The code has provided creditors and other stakeholders the ammunition to obtain the maximum value for stressed assets by shifting the balance of power from debtors – a big plus.”
The report however said that given the development and the amendments we have seen already, the stressed assets resolution framework in the country is still a work in progress.
While resolution in a time-bound manner remains a challenge along with other teething issues, the IBC, undoubtedly, since the time of its enactment has evolved considerably.
“The government will need to relook at the code based on stakeholder suggestion, and keep the credit lines well-oiled,” noted the ASSOCHAM-Crisil report. “But one thing is certain – there is no going back to the pre-IBC era.”
The study also came up with 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, digitisation 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 & prioritising 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 maximise 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.

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