New Delhi: More companies than ever are being rescued under the Insolvency and Bankruptcy Code (IBC).
For every insolvent firm saved in the first three quarters of this fiscal year, only 1.3 went into liquidation, beating the previous record of 1.64 in FY24, showed data compiled by the Insolvency and Bankruptcy Board of India (IBBI). This marks a sharp improvement from 5.06 liquidations for each resolution in 2017-18, the first year after the law was introduced in late 2016.
Senior officials expect the resolution ratio to improve further in the next fiscal year.
The IBC is fast altering its image of being a tool for liquidation rather than resolution, a senior official told ET.
To be sure, more than three-fourths of cases ending in liquidations virtually involved “dead cases” transferred from the erstwhile Board for Industrial and Financial Reconstruction (BIFR) regime when the IBC was rolled out in 2016 to resolve bankruptcy cases, experts said.
So, as more fresh cases came in, chances of resolutions brightened and the share of liquidations eased in subsequent years, they added.
“While previously the distressed asset market in India majorly included SARFAESI Act auctions by the financial institutions, the acquisition of entire businesses through the IBC is now becoming a preferred choice for investment advisors, turnaround professionals and restructuring experts,” said Anjali Jain, partner at Areness Law.
Late rescue, low recovery in FY25
Despite the improvement in resolutions, the rescue process is getting delayed further, IBC data showed. As many as 74% of the cases where resolution is under progress already breached the 270-day timeline as of December 2024, up from 68% in March 2024.
In fact, the average time consumed in the resolution of a bankrupt company rose to 701 days as of December from 679 days in March last year, according to the regulator’s data. Similarly, the time taken for liquidation of a firm increased to 508 days from 495 days during this period.
The corporate insolvency resolution process is supposed to be completed within 180 days and a 90-day extension is granted, subject to the National Company Law Tribunal (NCLT) approval.
However, the process tends to get prolonged, mainly due to litigation and delay in admission. Even a 330-day deadline, which includes time spent on legal proceedings, is hardly maintained.
