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The News

  • According to the latest data released by the Insolvency and Bankruptcy Board of India (IBBI), Distressed companies liquidated under the bankruptcy code have far outnumbered those rescued as of March 2022.

What is IBC?

  • The IBC Insolvency & Bankruptcy was brought in 2016 provides for a time-bound process to resolve insolvency.
  • Features of the Code
    • Insolvency Professionals to administer the resolution process. Insolvency professionals will be registered with insolvency professional agencies.
    • NCLT/DRT to adjudicate the proceedings of the resolution process.
    • Insolvency and Bankruptcy Board will be setup which will regulate all utilities set up under the Code.


IBC code – The Process

  • Initiation: When a default occurs, the resolution process may be initiated by the debtor or creditor.
  • Resolution: A committee consisting of the financial creditors will take a decision regarding the future of the outstanding debt owed to them.
    • If a decision is not taken in 180 days, the debtor’s assets go into liquidation.
  • Liquidation: Insolvency professional administers the liquidation process.
    • Proceeds from the sale of the debtor’s assets are distributed in the established order of precedence.


  • Beginning December 2016 till March 2022, 47% of corporate insolvency processes went into liquidation, while mere 14 % ended in a resolution plan.
  • Out of a total of 5,258 corporate insolvency proceedings initiated under the code till March 2022, only 3,406 have been closed.
  • Among those closed, as many as 1,609 proceedings have ordered liquidation, while 480 have ended in approval of resolution plans.

Lets Look Closer

  • The economic value of most of the companies that were liquidated had “almost completely eroded” even before they were admitted in the insolvency process as per the IBBI report said.
  • Indian lenders are left with no choice but to go for liquidation of stressed assets under the Insolvency and Bankruptcy Code (IBC) due to a mismatch between the quoted value of the asset and the bid price.
  • The assets after liquidation were valued at less than 8% of the outstanding debt amount.

Lets Look Closer

  • Among the large cases admitted under IBC like Essar Steel, Jet Airways, Dewan Housing Finance etc have been resolved with a certain portion as haircut.
  • But in many cases, the resolution plan money that has been agreed to has been even lower than the liquidation value assessed. (Total value for Quarter Jan-March 2022 : 1288 cr where liquidation value would have been 1316cr).
  • But why?
    • Bidders’ buying capacity has been impacted due to the pandemic and the bid amount is more often than not far less than expectations or is equal to the liquidation value of the asset.

Lets Look Closer

  • What are the major issues?
    • Large liquidations – Due to threat of long-drawn legal process & Strict timelines of IBC
    • Large Haircuts taken by lenders (As much as 95%)
    • Huge pendency of cases with NCLT (Many cases pending for more than 1 year)
    • Inefficient insolvency professionals
    • Global slowdown will also impact the recovery in near future

Is everything really bad?

  • IBC has successfully reduced the bankruptcy resolution time from 4.3 years in 2017 to 460 days in 2021. Till March 2020, the average recovery under IBC was around 45%.
  • IBC has also helped improving India’s ‘ease of doing business’ and ‘getting credit’ rank continuously between 2017 to 2020.
  • The biggest advantage has been the paradigm shift from “Promoter in possession model to creditor in control model.” IBC has created a credible deterrence model where in already more than 20000 cases (6.1 lakh crore worth) have been resolved through mediation even before admittance.
  • Even the World bank has highlighted that, India is, by far, the best performer in South Asia on resolving insolvency.

But improvement is needed..!!

What is needed?

  • More NCLT benchesand better appointment procedure.
  • Alternate dispute resolution mechanisms
  • Early IBC proceedings for stressed assets because longer the stress, the higher the deterioration in value of assets.
  • New institute for insolvency professionals can be setup.
  • International standards for haircuts needs to be followed in India.



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