IBC Resolution: Average Time Taken For CIRP Liquidation At 3-Year High, Says Report

The average time taken for a corporate insolvency resolution process (CIRP) yielding through resolution or liquidation is at a three-year high for all stakeholders, according to a report by India Ratings and Research quoting the IBBI June 2023 data.

“The share of ongoing cases under CIRP for 270 days and above reflects a rising trend compared to 1QFY23 and FY23,” India Ratings said on Wednesday. It also said the share of ongoing cases under CIRP for 90 days and below was at a three-year low of 10 per cent in 1QFY24.

It added that while the realisation for financial creditors (FCs) and corporate debtors (CDs) through the resolution mechanism has marginally improved compared to 1QFY23, it remains much lower than FY21-22.

“Operational creditors (OCs) registered a three-year high realisation at 17.7 per cent for CIRP closed through the resolution mechanism,” India Ratings said.

Resolution Timeline Highest in Past Three Years: The timelines for the resolution of a CIRP continue to increase for OCs and FCs. The timeline recorded for 1QFY24 has been the highest at 635 and 643 days for OCs and FCs, respectively, since FY21 and has seen a significant jump over 1QFY23 (OCs: 555, FCs: 552), according to the report.

Marginal Improvement in Realisations: CDs, OCs and FCs witnessed a marginal improvement in realisations during 1QFY24 compared to 1QFY23. The realisation of OCs has been the highest compared to the past three years, while for FCs it has been much lower than the realisations achieved during FY21-FY22. IBBI in its current newsletter has provided a break-up of the realisations achieved by financial services provides which stands at 42.6 per cent from the one case resolved during 1QFY24.

Realisation Stay Lower and Timelines Stretched Further: Realisations for creditors remain in a single digit in the scenario of liquidation. CDs and FCs saw a marginal decline in realisations in 1QFY24 compared to 1QFY23. Average time taken for closer during 1QFY24 was 480, 458 and 391 days for FCs, OCs, and CDs, respectively, which is the highest in the past three years.

Liquidation Continues to Dominate Closure of CIRP: Liquidation still commands 45 per cent of the share for closure of CIRP. There was a marginal improvement in cases closed through the Section12A & Resolution mechanism in 1QFY24.

Rising Trend of Ongoing Cases Crossing 270 Days: The share of ongoing cases under CIRP for 270 days and above reflects a rising trend in 1QFY24 in comparison with 1QFY23 and FY23. The share of ongoing cases under CIRP for 90 days and below was at a three-year low of 10 per cent in 1QFY24.

OCs Take the Lead: 49 per cent of the total cases initiated under CIRP were registered by OCs during 1QFY24 (43 per cent 1QFY23; FY23: 46 per cent).

Gap Between Admission and Closure Reduces: In sync with the past trend, although the cases admitted under IBC outpaced closures, the gap reduced during 1QFY24 compared with the historical trend.