Bankruptcy resolutions yielding lower realisations, taking longer: Report

Bankruptcy cases are taking longer to resolve and yielding lower values for lenders, a credit rating agency analysis said on Monday.

The average number of days taken to close a case either through a resolution process or liquidation was at its highest at 588 days for financial creditors if one were to look at official data for the first nine months of the current fiscal, it said, adding that it was 531 days in FY22 and 463 days in FY21.

The agency analysed official data released by the Insolvency and Bankruptcy Board of India to arrive at its findings.

The stretched timelines have resulted in admissions outpacing case closures every year since FY18, India Ratings and Research said, adding that the only exception to this was FY21 where admission of cases got restricted on account of the pandemic.

As against the 270 days stipulated in the Insolvency and Bankruptcy Code, the timeline for the Corporate Insolvency Resolution Process (CIRP) overshoots the mandatory timeline in 63 per cent of the cases, it said.

The quantum of money realised as a percentage of creditors’ claims was at the lowest in the first nine months of the fiscal year compared to the past two financial years, the agency noted.

For those opting for liquidation, the quantum of money realised as a percentage of the creditors’ claims is in single digits, the agency said.

The intensity of the cases admitted under CIRP increased during the first 9 months of the fiscal to 886 cases, which is a 70 per cent jump from the same period in the year-ago period, and almost equals the overall number of cases in FY22.

Although the case closure rate jumped 40 per cent during FY23, the gap between admission and closers has widened, the agency noted.