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Synopsis

• The recovery rate from personal guarantors currently stands at 5.22%. This rate is anticipated to rise following the Supreme Court’s recent ruling affirming the constitutionality of the IBC provisions regarding Personal Guarantors’ Insolvency Resolution. This ruling implies that the personal assets of guarantors can now be utilised to settle outstanding debts owed to creditors.

• The average time taken for resolution or liquidation continues to increase for operational creditors (OCs) and financial creditors (FCs) during the September quarter. Meanwhile, the overall recovery rate till Q2FY24 was 31.85% implying a haircut of approximately 68%. 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 and a significant number of liquidated cases were either BIFR cases and/or defunct with high-resolution time.

• After slowing in the pandemic period of FY21 and FY22, the number of insolvency cases referred has increased by around 19% y-o-y in Q2FY24. However, despite the increase, the number of cases admitted to the insolvency process continued to be lower compared to earlier quarters in FY20. The distribution of cases across sectors remains broadly similar, compared to earlier periods given the extended resolution timelines.

Insolvency Resolution of Personal Guarantors

Apart from the details on the corporate insolvency process which have been covered later, figure 1 contains details on the insolvency resolution and bankruptcy proceedings related to personal guarantees. Personal guarantees have come into the limelight as a recent Supreme Court judgement upheld the constitutionality of IBC provisions on Personal Guarantors’ Insolvency Resolution and dismissed over 200 petitions which had challenged the legal validity of such provisions.

Figure 1: Insolvency Resolution of Personal Guarantors

• 88 were withdrawn/rejected/dismissed before the appointment of a resolution professional. o Resolution professionals were appointed in 991 cases, while 282 cases have been admitted.

? Out of these cases, 90 have been closed, 7 have withdrawn, 62 have been closed due to non-submission/rejection of plans.

? Only 21 have yielded approval of repayment plans and have realised Rs 91.27 crore which is 5.22% of their approved claims. 62 cases have been withdrawn/rejected/dismissed.

Corporate Resolutions Timelines Continue to Increase for Cases across the Board…

The delays for CIRP closure are higher compared to Liquidation across various categories of stakeholders, but the corporate debtors take somewhat less time for resolution compared to the other two stakeholders (financial creditor and operational creditor). On a sequential basis, the number of days has increased across all categories.

Figure 2: Timeline of Cases (# of days)

Of the over 2,000 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 67% of ongoing CIRPs in September 2023 as compared to 73% in September 2021 and 63% in September 2022. The share has broadly moved to the higher number of days tier. Further, we can observe that the ‘more than 180 days but less than 270 days’ segment is the second largest highlighting the significant delays in the process. Further, the other two categories have a similar share in the current quarter compared to the last quarter indicating that a similar number of cases have commenced in both quarters.

Figure 3: Timeline of Ongoing CIRPs

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