Haircuts for operational creditors are at par with financial creditors, says Icra report

Operational creditors would realise about 42% of the total claims for the 92 corporate insolvency resolution plans that have yielded a resolution plan, which is in line with the 44 percent for financial creditors

Press Trust of India June 20, 2019 11:23:04 IST
Haircuts for operational creditors are at par with financial creditors, says Icra report
  • The operational creditors—vendors and companies who have dues from a distressed company—are assumed to be unsecured creditors

  • Operational creditors would realise about 42% of the total claims for the 92 corporate insolvency resolution plans that have yielded a resolution plan

  • The ability to take a company to the National Company Law Tribunals is one of the biggest successes of the introduction of the IBC

Mumbai: Operational creditors account for nearly half of the bankruptcy cases admitted at the NCLTs and the haircuts in resolutions taken by them are at par with the same taken by financial creditors, a report said Wednesday.

The operational creditors—vendors and companies who have dues from a distressed company—are assumed to be unsecured creditors, unlike the secured financial creditors like banks. The operational creditors have been successful in maintaining their ratio of payouts because of an eye on maintaining relationships by the successful bidders in resolutions processes, rating agency Icra said.

It said operational creditors would realise about 42 percent of the total claims for the 92 corporate insolvency resolution plans that have yielded a resolution plan, which is in line with the 44 percent for financial creditors, it said.

"We believe that the reason the operational creditors have not suffered significantly higher haircuts is on account of the criticality of certain creditors to the core operations of the corporate debtors," its co-head for corporate ratings Abhishek Dafria said.

He added that resolution applicants have ensured that relationships with such creditors are maintained. In the case of some large size corporates, realisation by the operational creditors have been much higher than the average realisations such as that seen in the resolutions of Bhushan Steel (81 percent of claims received by operational creditors) and Binani Cement (86 percent), he said.

Haircuts for operational creditors are at par with financial creditors says Icra report

Representational image. Reuters

The ability to take a company to the National Company Law Tribunals is one of the biggest successes of the introduction of the IBC (Insolvency and Bankruptcy Code), the agency said, adding such creditors are using the provision proactively and effectively.

Of the 1,858 corporate debtors referred to the NCLT up to 31 March 1920 or 49 percent cases have been referred by the operational creditors, it said.

Despite the delays being witnessed in the application being accepted by the NCLT and then the delays in the CIRP itself, the operational creditors have continued to show confidence in the process and remained at the forefront of pushing corporate debtors to the NCLT, it said.

Dafria said as the operational creditors do not get to sit on the committee of creditors in case of a distressed account, it is the responsibility of the lenders to take the latter's interests on board for financial health of a company.

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