Borrowers now try to resolve stress early: Economic Survey talks of behavioural change

While critics argue that the bankruptcy code is ineffective in making sizable recovery of debt, there has been a marked shift in how the owners of defaulting companies behave in addressing the distress.

Thousands of debtors are now trying to resolve the stress early and making best effort to avoid consequences of the resolution process.

“Distressed assets have a life cycle and their value gradually declines with time. The fact that a corporate debtor may change hands has changed the behaviour of debtors,” the government said in the economic survey.

Till September last year, a whopping 18,629 applications seeking corporate insolvency resolution of debts amounting to nearly Rs 5.90 lakh crore were resolved even before their admission.

Further, a total of 527 resolution processes have been withdrawn till September 2021. Almost three fourth of these had claims of less than Rs 10 crore and 701 cases have been closed on appeal/review or settled.

The Insolvency and Bankruptcy Code (IBC) has opened possibilities of the debt resolution through merger, amalgamation and restructuring of any kind while many a times, the companies went for liquidation when no resolution could be arrived at.

Lenders could recover just about 49 per cent of their exposure from the 12 biggest IBC-driven debt resolutions involving a cumulative debt of Rs 3.25 lakh crore. In some other cases, the haircut has been as high as 95 per cent of the existing debt.

As of September 2021, the Code has rescued 421 corporate debtors through resolution while referring 1419 debtors for liquidation. Nearly 65 per cent of the total admitted cases have been closed, either by resolution, withdrawal or liquidation. Out of the 1640 ongoing cases, nearly 75 per cent have been ongoing for over 270 days.

The 421 cases, which saw successful resolution, took an average 428 days for the conclusion of the process, excluding the additional time allowed by the adjudicating authorities in case of disputes.

There has been an overhaul in the process of winding-up due to the insolvency/bankruptcy with the introduction of the IBC. However, the procedure of voluntary exit of business still needs to be simplified significantly, the government observed.