IBC Sees Record High Resolutions in Fiscal 2024 Amid Increasing Investor Interest

The Insolvency and Bankruptcy Code (IBC) reached a milestone in fiscal 2024 with a record 269 cases resolved, an increase of 42% from the 189 cases in fiscal 2023, according to a CRISIL report. This unprecedented rise is attributed to heightened investor interest and the appointment of new members to the National Company Law Tribunal (NCLT).

Notably, approximately 88% of these resolved cases were from previous years' backlogs. Investors are increasingly focusing on stressed assets, submitting numerous resolution plans as they aim to turn these assets around. The report noted that the appointment of new NCLT members significantly contributed to the higher resolution numbers.

However, the report highlighted challenges such as reduced recovery rates and stretched timelines. Fiscal 2024 saw recovery rates of around 27% of admitted claims, a drop from 36% in the previous year, with resolution timelines extending to about 850 days, compared to 825 days in fiscal 2023.

The CRISIL report also revealed a surge in resolutions within the real estate and manufacturing sectors, which accounted for about 65% of total plans approved. Real estate saw a growth of around 200% in resolutions, driven by strong demand for residential properties. The manufacturing sector focused on mid-sized and small companies, leading to a 22% increase in resolutions.

'The higher case resolution momentum is a result of continuous efforts to improve the throughput rate of IBC through structural reforms, including appointing 15 additional NCLT members in late fiscal 2023,' said Mohit Makhija, Senior Director at CRISIL Ratings.

Despite these achievements, delays in case admissions by NCLT due to operational backlogs, ongoing cases, and cross-litigations remain significant hurdles. As of March 2024, there were approximately 4,400 ongoing cases. The lack of a common mediation platform for stakeholders further complicates rapid settlements.

To mitigate these issues, the Insolvency and Bankruptcy Board of India (IBBI) is considering introducing out-of-court solutions like Insolvency Mediation, as recommended by an expert committee in January 2024. This process would involve pre- and post-admission mediation to expedite consensus among stakeholders, preserving the business value through faster resolutions.

'Delays in resolutions not only impair asset value but also reduce revival chances. Analysis of past fiscals shows that a one-year delay in resolution depletes the recovery rate by 800-1,000 basis points,' observed Sushant Sarode, Director at CRISIL Ratings.

(With inputs from agencies.)