4 ASIAN LEGAL BUSINESS – INDIA E-MAGAZINE MARCH-APRIL 2024 The Insolvency and Bankruptcy Code, 2016, has a timeline of 270 days to complete the Corporate Insolvency Resolution Process (CIRP), including any extensions granted. This includes an initial 180 days, plus an additional 90 days in exceptional circumstances. As per the latest figures up to December 2023 released by the Insolvency and Bankruptcy Board of India, 68 percent of CIRPs have missed the 270-day deadline, and the average time for resolution has reached 677 days for financial creditors (FCs). Even with these timelines, FCs have managed to recover only 33.8 percent of their admitted claims. While FCs have realised 177.6 percent when compared with the debtor’s liquidation value (the lowest possible value estimate of a debtor’s existing assets), lawyers say this is a case of a few large CIRPs pulling the average up. This low and slow recovery is turning financial creditors and potential investors, who look to buy companies under CIRP at cheaper prices, away from the one-time settlement prior to the initiation of the CIRP, says Piyush Singh, a partner in PSP Legal’s debt resolution practice. The haircut on settlement value significantly increases for FCs post-CIRP versus pre-CIRP. Pre-CIRP settlement recoveries can go up to 40 percent, but settlements agreed to after CIRP commencement can bring down recovery to as low as 10 percent, Singh explains. This is truer for smaller FCs, who usually get bulldozed by the larger creditors in the statutorily mandated Committee of Creditors that are to approve a resolution plan, Singh adds. The data reflects this trend, as of the 7325 claims admitted till December 2023 by the NCLT, over 2150 have been settled or withdrawn before the initiation of the CIRP process. Only 891 have reached approved resolution plans. Creditors are preferring to walk away based on lower net present valuation today rather than wait two to three years to receive only a marginally higher payout after having dealt with frivolous creditor claims, institutional delays and unending litigation, says Abhirup Dasgupta, senior partner at HSA Advocates. Lawyers explain that there is a direct correlation between the delays at the NCLT and the recovery value for a creditor. WHAT AILS THE NCLT Institutional vacancies and technical incompetency at the NCLT are the two major reasons for such delays from the IBC timelines. Of a total sanctioned strength of 62, the actual strength of the NCLT across its boards in India had reached as low as 28 in September 2021, as per the government’s own documents presented before Parliament. While today, the strength has improved and was noted as above DEATH OF A TRIBUNAL Lack of judicial capacity, incompetency, and frivolous litigation in the National Company Law Tribunal (NCLT) have led to decreased values and increased timelines for debt recovery under India’s bankruptcy code, driving financial creditors and prospective debt buyers away from India’s foremost stressed asset resolution scheme. BY NIMITT DIXIT “The solution is to have younger, commercial-minded, industry-fit and regularly trained lawyers on specialised NCLT benches focused only on IBC cases, lawyers say. An increase in the number of benches and prioritising resolution of claims rather than admission, as is the government’s policy today, will also release pressure.” Image: REUTERS/Francis Mascarenhas process. While financial creditors continue to file claims, they do so mostly as a pressure tactic in order to obtain a
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