Creditors take a haircut of 70% in insolvency cases: CareEdge report

• The cumulative recovery rate has been on a downtrend, decreasing from 43% in Q1FY20 and 32.9% in Q4FY22.
  
  
• The number of cases admitted for insolvency resolution has increased y-o-y in Q3FY23 by around 25%.
  
  
• Of the total 6,199 cases admitted into CIRP at the end of December 2022, only 10% have ended in approval of resolution plans.
  

The overall recovery rate in insolvency cases till Q3FY23 was 30.4% implying that lenders took a haircut of approximately 70%, according to a report by CareEdge, a credit rating company.

The cumulative recovery rate has been on a downtrend, decreasing from 43% in Q1FY20 and 32.9% in Q4FY22 as larger resolutions have already been executed. A significant number of liquidated cases were either Board for Industrial and Financial Reconstruction (BIFR) cases and/or defunct with high resolution time, coupled with lower recoverable values.

The number of cases admitted for Corporate Insolvency Resolution Process (CIRPs) has increased y-o-y in Q3FY23 by around 25% after reducing in the last few quarters in FY21 and FY22 which saw a slowdown due to the pandemic.

Despite the increase, the number of cases admitted to the insolvency process continues to be lower compared to earlier quarters in FY19/20.

The number of cases admitted for CIRPs has increased each quarter since the launch of the Insolvency and Bankruptcy Code in 2016, highlighting the rising acceptance of IBC as an effective debt resolution mechanism. IBC has continued to gain in popularity, with close to 6,200 companies being admitted and a significant number of these cases on a cumulative basis till December 2022 being filed by the financial creditors (2,692 cases) and the operational creditors (3,133 cases). The share of corporate debtors has continued to remain the smallest over the same period.

Of the 2,000 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 64% of ongoing CIRPs in December 2022 which is a decline of 9% as compared to 73% in December 2021.

Further, the report observes that the ‘more than 180 days but less than 270 days’ segment is the second largest indicating that quite a few cases which had commenced in the earlier quarters have piled up, while the other two categories continue to have quite a few cases in them highlighting the significant delays in the process.