The recovery rate from personal guarantors under the Insolvency Bankruptcy Code (IBC), which currently stands at 5.22 per cent, is likely to rise post the Supreme Court’s ruling affirming the constitutionality of the IBC provisions regarding Personal Guarantors’ Insolvency Resolution, said a report by CareEdge Ratings.
The Supreme Court upheld the constitutionality of IBC provisions on Personal Guarantors’ Insolvency Resolution, dismissing over 200 petitions which challenged its legal validity.
This ruling implies that the personal assets of guarantors can now be utilised to settle outstanding debts owed to creditors.
Out of total cases admitted between financial year 20 till the second quarter of financial year 24, only 21 have yielded approval of repayment plans and have realised Rs 91.27 crore, which is 5.22 per cent of their approved claims, whereas 62 cases have been either withdrawn, rejected, or dismissed, the report said.
The analysts at the rating agency also observed an increase in delays for Corporate Insolvency Resolution Process (CIRP).
As per the data, there has been a delay of more than 270 days for the completion of process in 67 per cent of the ongoing CIRPs in September 2023 as compared to 63 per cent in September 2022. In September 2022, it was 73 per cent. The second largest segment is the ‘more than 180 days but less than 270 days’ section which has moved up to 13 per cent of the cases in September 2023 from 11 per cent in September 2022.
On the other hand, the segment with ‘more than 90 days but less than 180 days’ has seen 10 per cent of the cases being pending in September 2023 from 15 per cent in September 2022.
The time for liquidation also remains elevated with nearly 55 per cent of the cases being pending for over two years and another 20 per cent being pending for more than one year.
The admission of cases for CIRP has increased by nearly 19 per cent year-on-year in the second quarter of FY24. However, despite the increase, the number of cases admitted to the insolvency process continues to be lower compared to earlier quarters in FY20.
IBC has continued to gain in popularity, with nearly 7058 companies being admitted, with 3141 of these cases on a cumulative basis being filed by the financial creditors and 3491 being filed by operational creditors.
Among the overall cases, the manufacturing sector accounts for the highest share at 38 per cent, followed by the real estate at 21 per cent, construction at 11 per cent, and trade (wholesale & retail) sectors at 10 per cent.
The overall recovery rate, which has seen a marginal decline, still continues to be around 30 per cent.
The recovery rate in the April-September quarter stood at 33.01 per cent, whereas the overall recovery rate reached 31.85 per cent till the second quarter of FY24. “Consequently, for the cases which have been resolved, the creditors have continued to face a haircut of approximately 68 per cent on admitted claims. Some of the cases being disposed of are several years old. Thus, there is a huge amount of interest and overdue charges admitted to such cases, inflating the overall figures,” as per the report.