Need to strengthen corporate insolvency resolution process by having deterrents against failure: Icra
IBC was implemented, three concluded corporate insolvency resolution process (CIRPs) being brought back to NCLTs
The agency said 600 cases have been closed under the IBC by various NCLT benches but only 82 CIRPs yielded a resolution plan
The three cases which came back to NCLTs went into liquidation, the agency said
The government should set up strong deterrents to ensure that the resolution applicants do not default on their proposed plans
Mumbai: There is a need to strengthen the insolvency resolution process by having deterrents against failure or delays in implementing resolutions plans, a report said Monday.
In the last two years, Insolvency and Bankruptcy Code (IBC) was implemented, three concluded corporate insolvency resolution process (CIRPs) being brought back to the National Company Law Tribunals (NCLTs), it said.
"...the need of the hour is to strengthen the (resolution) mechanism to ensure that the resolution plans approved by the National Company Law Tribunal (NCLT) are
firmly implemented so that the sanctity of the process is maintained," domestic rating agency Icra said.
The three cases which came back to NCLTs went into liquidation, the agency said.
The government should set up strong deterrents to ensure that the resolution applicants do not default on their proposed plans, through measures like a penalty amount linked to the realisation promised to the creditors under the resolution plan or barring the resolution applicant from participating in any future CIRPs, it said.
The deterrents would make resolution applicants more cautious and sincere, and reduce instances of completed CIRPs being brought back to the NCLT benches which are already over-burdened with cases, it said.
It also cited the case of Amtek Auto, where the company was deemed to have completed its CIRP with recovery of Rs 4,330 crore to financial creditors, but the resolution plan got approved one full year after admission to NCLT.
Liberty Group, the resolution applicant in this case, has not fulfilled the initial terms of the resolution plan, as a result of which, the matter will once again be discussed in the NCLT, the agency said.
"The inability of the resolution applicant to proceed with the resolution application further elongates the CIRP beyond its reasonable time frame. For such CIRPs that had to be reviewed again by the NCLT, we observe that the time required for the entire process effectively doubled," the agency's co-head for corporate ratings Abhishek Dafria said.
In cases which go into liquidation like the three ones, recovery for the creditors is most likely to be lower than the amount that would have been envisaged if the
resolution application would have materialised, it said.
"Thus, it becomes imperative that post the approval of the resolution plan by the NCLT, the resolution applicant puts the plan in action within the prescribed timelines so that there is a fruitful outcome of the entire process," he said.
The agency said 600 cases have been closed under the IBC by various NCLT benches but only 82 CIRPs yielded a resolution plan.
"The completion of a CIRP with acceptance of a resolution plan approved by the Committee of Creditors has turned out to be a time-consuming affair with certain
corporate debtors requiring even more than 500 days to close the CIRP," Dafria said.
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