Liquidations Account for Nearly Half of Closed CIRP Cases

New Delhi: Nearly half of the closed corporate insolvency resolution processes (CIRPs) have ended up with liquidation.

The Financial Stability Report for January 2021 of the Reserve Bank of India (RBI) shows that as on September 2020, out of the total closed resolution processes of 2,066 companies, 1,025 companies went for liquidation.

"Out of the CIRPs closed, nearly half yielded orders for liquidation," the report said.

Further, in 73.5 per cent of these cases (751 out of 1,022 for which data is available), the corporate debtors were earlier with BIFR (Board for Industrial and Financial Reconstruction) or were defunct and the economic value in most cases had already eroded before they were admitted into CIRP, it said.

These corporate debtors had assets, on an average, valued at less than 5 per cent of the outstanding debt amount.

Of the CIRPs initiated, 277 ended in resolutions up to end-September 2020. Realisation by creditors under resolution plans in comparison to liquidation value stood at 185.2 per cent, while the realisation was 43.6 per cent in comparison to their claims, the report said.

Significantly, out of the 277 resolutions, 91 corporate debtors were under BIFR processes or were defunct.

The CIRPs which yielded resolution plans by the end of September 2020 took an average of 384 days, after excluding the time excluded by the adjudicating authority for conclusion of the process.

At the end of Q2 2020, the number of CIRPs admitted since the inception of the Insolvency and Bankruptcy Code (IBC) stood at 4,008, with the manufacturing sector accounting for the largest share. There was a sharp decline in the number of CIRPs during Q1 and Q2 2020 as compared to the previous quarters, owing to temporary suspension of the process, in the wake of the pandemic situation, said the RBI report.