Companies rescued under the Insolvency and Bankruptcy Code till June had assets valued at about 22 per cent of the amount due to the creditors, the Insolvency and Bankruptcy Board of India (IBBI) Chairman M.S. Sahoo said on Thursday. Stressing that haircuts taken by lenders are not the fault of IBC, he said creditors staring at a haircut of 78 per cent were not only rescued under the Code but their haircut was reduced to 61 per cent.
“IBC is not a panacea for all ills and requires systematic and holistic assessment...If claims and realisations are adjusted to their real level, haircut figures will be lower,” Sahoo said.
Addressing the Conference on Insolvency and Bankruptcy Code, 2016 organised by the CII, Sahoo said people saying that three-fourth of the companies are getting liquidated are seeing only the endgame. Of the companies proceeding for liquidation three-fourth were defunct to start with and among the companies rescued one-third were defunct. This, Sahoo said meant that two-third of the companies were defunct when they entered the IBC process. “Outcome of the IBC will be better if stakeholders start the resolution process on early signals of stress and close it expeditiously,” he said.
Clearing the air on high numbers of companies entering liquidation, Sahoo said that the companies ending up with liquidation had assets, on average, valued at about six per cent of the outstanding claims. “In value terms, companies, accounting for 70 per cent of these distressed assets were rescued while those accounting for 30 per cent of stressed assets proceeded for liquidation,” he added.
The IBBI chief also asked the industry to try to find a solution in the market rather than always asking the state to find a solution for a market problem.
He said that while the state was doing its best, the IBC had been amended six times in less than five years to meet the needs. But, the market he said, has also to rise to the occasion.
“The way forward should be the markets. We do not have solutions for everything in the state machinery. This does not mean that the state will take a backseat,” Sahoo said. He said IBC is an orchestra and everyone has a role and if anyone does not cooperate then the process may not either conclude in time or reach the optimum outcome.
On the issue of prepackaged schemes for insolvency resolution Sahoo said that there is a lot of demand to make this mechanism available for large companies. “We do not have enough experience with pre-packs. It has not been used much till now. Companies should use what is on the plate instead of asking for things that are not there,” Sahoo said.
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