2024-11-12 18:45:41 :
NEW DELHI: Sixty-three debt-laden companies were given a new lease of life in the September quarter, almost half the number of distressed businesses that have avoided liquidation so far this year.
The total number of companies rescued under the Insolvency and Bankruptcy Code (IBC) this year is 121, official data shows.
Figures released by IBBI on Monday showed that 1,068 companies have emerged from bankruptcy in the eight years since the IBC came into effect.
The data also showed that vendors and other service providers initiated fewer bankruptcy proceedings against their customers than lenders in fiscal 2023, 2024 and so far this fiscal year, a trend that pleased policymakers .
Concerns about rising cases
The increase in the number of insolvency cases initiated by operational creditors is worrying as it suggests that suppliers are using IBCs as a recovery mechanism. However, suppliers are more interested in meeting supply conditions than resolving these companies’ debts.
The IBC aims to save companies through new investments and, if necessary, to restructure companies or to liquidate non-viable companies.
In the first half of this financial year, 121 companies have had their resolution plans approved by the National Company Law Tribunal. In FY24, tribunals approved a record 269 resolution plans, compared with 189 the previous year.
IBBI has been fine-tuning its regulations to enable faster decision-making by tribunals. Meanwhile, the government is drafting legislation to amend the IBC and make the code clearer.
Government raises payment default threshold for initiating bankruptcy proceedings in 2020 $100,000 to $10 million. Suppliers and service providers falling under the operational creditor category dominated the initiating of IBC actions against defaulting companies in the six years to FY22.
What is owed to operational creditors is typically lower than what the company owes financial institutions.
Successfully reversed suspicious transactions
The data also shows that success is slowly emerging in reversing dubious deals struck by companies or their promoters before they fell into insolvency.
By the end of the September quarter, courts had ordered the recovery of more than $Such transactions brought in Rs 7,516 crore, which was 12% higher than the recovery order book as of the end of the June quarter. This is from 338 transactions reviewed by the court, worth more than $58,500.
At the end of June, the court approved the recovery $Rs 6,676.6 crore came from such transactions, known as “tax avoidance transactions”. Debt resolution professionals have referred 1,326 transactions to date, worth over $$3.76 trillion in damages to the court.
In the regulator’s quarterly update, IBBI Chairman Ravi Mital said recusal transactions by former promoters and directors were one of the major reasons that led to companies falling into financial distress and ending up in bankruptcy courts.
“There is a need to take these transactions seriously,” Mittal said, adding that creditors should pay close attention to the legal proceedings for such transactions.
“Recovery from avoidance transactions will play a vital role in reducing creditor relief. Conservatively, the decision to avoid transactions will increase creditor recovery capabilities by at least 10%,” Mittal said.
In the update, the chairman said that in case of clear prosecution in court, lenders should approach the Ministry of Corporate Affairs (MCA) or IBBI and file a criminal complaint before the designated special court. Regulatory scrutiny is expected to ensure prosecutions are only brought in serious cases.
Mittal also suggested that these transaction details, which reflect the assets of the company, should be part of the competitive bidding process for new investors so that they are reflected in the bids received.
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