Debt, Default And Delay: Mapping The Correlation Between Delays, Value Erosion And Realisations

Debt, Default And Delay: Mapping The Correlation Between Delays, Value Erosion And Realisations Under IBC

Pooja Singla, Manager, Insolvency and Bankruptcy Board of India

Vinay Pandey, Manager, Insolvency and Bankruptcy Board of India

Romit Nandan Sahai, LLB, Vivekananda Institute of Professional Studies

ABSTRACT

The Insolvency & Bankruptcy Code, 2016 (IBC/Code) has undoubtedly been a watershed moment for the rescue regime of India bringing not only a significant shift in how the insolvency resolution process takes place from its earlier regime but has also gone a long way in addressing the perils that had plagued the previous legislations, particularly the long and cumbersome judicial process that was involved. While IBC has certainly addressed this major drawback, by bringing down the resolution timeline to around 300 days, it still is criticized for not being nimble enough, and for its abysmally low rates of realization and large haircuts to the creditors. While the realization rates under IBC are calculated as a percentage of admitted debt, it does not take into account the piling amount of interest on debt, and the value erosion of the assets of the distressed entity during the time gap from date of default to date of action to resolve stress i.e., date of admission of petition under IBC. This approach paints only a one-side image of the recoveries made under IBC and is bound to show haircuts at a staggering exaggerated percentage. This article makes an attempt to benchmark the realizations under the IBC after taking into account the value erosion of assets of the distressed entity so to realistically see the recovery rates of resolved companies.