Only 32.8% of claims recovered under Insolvency and Bankruptcy Code

Who it concerns: This concerns the Ministry of Corporate Affairs, the National Company Law Tribunal (NCLT), banks and financial institutions, distressed companies, homebuyers, and MSMEs involved in insolvency proceedings.

What the committee found

• Post-resolution challenges: The Committee identified delays in regulatory clearances and difficulty securing fresh financing due to defaulter status; it recommended an online mechanism for issuing 'no dues' certificates and statutory clearances.
• Delays and judicial capacity: The Committee cited NCLT bench shortages, vacancies, and frivolous litigation as causes for delays; it recommended expediting additional NCLT benches, operationalizing a centralized case management platform, raising penalties for frivolous applications, and mandating upfront deposits for unsuccessful applicants.
• Valuation of distressed assets: The Committee noted that only 32.8% of admitted claims are recovered despite creditors realizing 170% of liquidation value, attributed to late entry into the process and lack of valuation transparency; it recommended enterprise value-based valuation, global outreach for competitive bidding, and SOPs for post-resolution valuation reviews.
• Homebuyer rights: The Committee observed that homebuyers lack an independent right to relief and rely on the Committee of Creditors' discretion; it recommended reconsidering eligibility criteria and inter-ministerial coordination.
• Cross-border insolvency: The Committee recommended selective adoption of the UNCITRAL framework with modifications to address losses in high-value cases.
• Pre-institutional mediation: The Committee recommended introducing an early-stage mediation process as an alternative dispute resolution mechanism.
• Avoidance Transactions: The Committee highlighted fund diversion as a critical concern causing value erosion; it recommended empowering Resolution Professionals to conduct deeper, time-bound investigations.
• Pre-packaged Insolvency Resolution Process (PPIRP): The Committee noted low uptake by MSMEs due to infrastructural and procedural gaps, pushing banks to use SARFAESI; it recommended simplifying PPIRP procedures, issuing clear guidelines, increasing awareness, and providing incentives for banks.

Also in the document

• The Committee observed that while creditors realize 170% of the liquidation value, only 32.8% of the total admitted claims are recovered.
• The Committee identified that firms often enter the insolvency resolution process when their assets are already heavily stressed, which reduces realization value.