New Delhi, Nov 28 (FN Bureau) Time taken for corporate insolvency resolution under bankruptcy law Insolvency and Bankruptcy Code (IBC) continue to stretch with those resolved in the second quarter of FY24 touching an all-time high of 662 days for financial creditors, according to a report from India Ratings and Research (Ind-Ra) released on Tuesday. The delay was seen across all creditor classes for the past three years. “Process-related challenges such as legal tussles between stakeholders, case execution bandwidth, delay in judgments, information asymmetry and a lack of standardisation (e.g. valuation process) are leading to elongated timelines,” Ind-Ra said.
The research and rating firm, however, said that recoveries for financial creditors have stabilised in the range of 33% to 35% though operational creditors have shown some uptick in recoveries to 18.3% in 2QFY24 from 16.5% in 2QFY23. “In Ind-Ra’s opinion, recoveries from the resolution are slowly reverting to the pre-IBC days after the initial success when they were in the range of 40%-45%. This could further delay a deepening of the bond markets, which, besides information asymmetry, are exposed to significant losses in the event of a default by the issuer, given their unsecured nature. In comparison with other resolution mechanisms, IBC has displayed an improved level of recoveries,” it noted.
Ind-Ra said that the experience of liquidating assets also shows extended timelines for recovery for all asset classes and recoveries in the region of 5% to 10% with financial creditors on average recovering lesser than operational creditors. Soumyajit Niyogi, Director, Ind-Ra, said, “While liquidation remains the option which has shown the maximum closures under IBC, its lower realisations is likely to encourage creditors to seek resolutions either outside the IBC or register only those cases under IBC where the recoveries through resolution are likely to be higher.”