Mumbai: Even as bankers rejoice over the recovery from large accounts like Essar Steel and Ruchi Soya this month, latest data from the Insolvency and Bankruptcy Board of India (IBBI) show resolution in a majority of cases has been tough. More than half the cases taken to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) have been closed due to liquidation with banks recovering next to nothing from these accounts.
Data from IBBI show that 56 per cent or 587 out of the 1,045 cases closed till now have gone into liquidation. Out of these cases, 24 have completed the liquidation process and an order of dissolution has been passed.
However, the sale proceeds from these accounts have been less that Rs 16 crore versus the total amount of claims admitted being close to Rs 8,600 crore. In other words, banks have been unable to recover costs associated with taking these companies to the NCLT.
“This is the reality in the IBC beyond the big cases. If the liquidation does not yield money, then the expenses for the process like fees for the resolution professional, operating expenses and other administration costs associated with finding a resolution has to be recovered from committee of creditors. In other words, in some of these cases, banks may have to shell out money without any gains,” said a senior banking executive working in the recovery division.
Among the 24 cases where the liquidation process has been completed, Ghotaringa Minerals with admitted claims of Rs 4,663 crore and Orchid Health Care with admitted claims of Rs 3,500 crore were the two big accounts. Both of these companies have yielded less than Rs 10 lakh in sale proceeds, IBBI data show.
“Logically speaking, the distribution of the proceeds happen only after the costs linked to the resolution process are taken care of. The committee of creditors will only get anything out of the process if there is some value coming out of the liquidation process,” said Dina Wadia, partner at J Sagar Associates.
All indicators are that the situation is going to become more acute as two more large accounts are under the process of liquidation.
Lanco Infratech which owes creditors Rs 50,652 crore and ABG Shipyard which owes lenders Rs 17,000 crore are undergoing the liquidation process with uncertainty over the amount that can be recovered.
Source: Economic Times
