Insolvency and Bankruptcy Board of India (IBBI), the bankruptcy regulator, said in a quarterly update that 777 applications have been filed by the resolution professionals before tribunals seeking directions on such deals called ‘avoidance transactions.’ Of these, 71 transactions involving over ₹15,000 crore were disposed of by the tribunals, leading to the recovery of over ₹49 crores, IBBI said in its update for the March quarter.
The bankruptcy code allows resolution professionals and liquidators to look back into the past of firms to see if their pre-bankruptcy transactions were in order and if not, seek tribunal orders to annul them. IBBI also said that in a particular case, 758 acres of land out of 858 acres valued at ₹5500 crore has been given back to a company which is undergoing bankruptcy resolution.
At present, a resolution professional can request a tribunal to annul an undervalued transaction of the bankrupt company dating back upto two years in the case of related party transactions and upto one year in the case of others.
The government is now in the process of making amendments to the Insolvency and Bankruptcy Code, to extend the oversight of resolution professionals over a longer period of pre-bankruptcy financial stress by the corporate defaulter.
IBBI data show that admission of bankruptcy cases in tribunals has steadily picked up in FY22 after the restriction on taking businesses to court for pandemic related defaults was lifted in March 2021.
Data showed that 312 cases were admitted in tribunals for bankruptcy resolution in the March quarter of 2022, close to twice the number of cases admitted in the June quarter of the just concluded year. In the June quarter, 165 cases were admitted, followed by 167 in September and 238 in December. However, the number of cases admitted is only a tip of the ice berg given the long delays in admission of cases.
Two fifth of all the cases admitted to tribunals belong to the manufacturing sector, 20% belong to real estate, 11% to construction industry and 10% belong to retail trade, indicating that these are pain points in the economy.
Data also showed that operational creditors like vendors initiate most of the bankruptcy cases where the payment defaults are small, while banks initiate proceedings in large defaults. Four-fifth of all the bankruptcy cases where the default is less than ₹1 crore are initiated by operational creditors, while an equal proportion of cases are initiated by financial creditors in cases where the payment default is more than ₹10 crores, showed the data.
Under the IBC which became operational in 2016, 480 distressed companies were rescued till March 2022, of which a third were in deep distress, IBBI said. The rescued companies had assets worth ₹1.31 trillion. The 1,609 companies that went into liquidation had assets worth ₹56,000 crores when they were admitted to tribunals. In value terms, 70% of distressed assets are rescued, IBBI said.
