IBC resolution plans take 582 days on average, liquidation process takes 499 days: Survey

The Economic Survey of India released on Friday revealed that Insolvency and Bankruptcy Code (IBC), designed to ensure swift resolution of distressed companies, is grappling with significant delays, with Corporate Insolvency Resolution Process (CIRP) taking an average of 582 days to conclude and liquidation process averaging 499 days. .These timelines far exceed the IBC’s mandated 180-day resolution period, extendable upto 330 days. These figures do not include the time taken for applications to be admitted or the periods excluded by the National Company Law Tribunal (NCLT), which averaged 116 days per case. This exclusion accounts for approximately 64% of the time originally intended for the entire process..The survey noted that delays in admitting insolvency applications remain a critical bottleneck. While the IBC prescribes a 14-day timeline for admission, operational creditors faced an average wait of 468 days in Financial Year 2021 and 650 days in Financial Year 2022. .According to the survey, as of September 2024, the average haircut for creditors under the IBC has been 14% relative to fair value and around 69% when measured against admitted claims. However, despite these haircuts, 1,068 resolution plans have resulted in creditors recovering ₹3.6 lakh crore, amounting to 161% of the liquidation value and 86.1% of the fair value in 964 cases where fair value has been estimated. Additionally, the resolution process has enabled 79 corporate debtors to continue operations through going-concern sales. These debtors had total claims worth ₹1.4 lakh crore against which liquidators realised ₹3674.1 crore..The survey highlighted the change in debtor behaviour since the inception of IBC. It noted that since the code's inception and March 2024, over 28,818 applications involving defaults worth ₹10.2 lakh crore were withdrawn before admission. According to the survey, companies are increasingly opting for early resolution strategies to avoid the consequences of formal insolvency proceedings.It further revealed that out of the 12 major accounts referred by the Reserve Bank of India (RBI) for resolution, 10 have been successfully resolved, further underscoring the efficacy of the Code..According to the survey, the NCLT reported adjudicating 34,690 cases out of 35,501 cases filed, achieving a 98% adjudication rate as of July 2024. However, 2,593 cases are still awaiting admission, and 4,723 cases remain pending after admission. As of September 2024, 30 courts and 16 benches (of NCLT) were functioning headed by the President, and 31 each of judicial and technical members, the survey noted. Addressing the reason for the delay, the survey said “Reasons for delay in admission occur as the AA (NCLT) tries to establish the existence of debt and default, as promoters file objections. Including evidentiary proof in the form of contracts, GST filings, etc., is all provided for, but all of this can be contested.”To remedy this, the economic survey noted that experts recommend leveraging digital tools and the Information Utility (IU) established under the IBC. The IU, which maintains records of financial transactions, could serve as conclusive proof of debt and default, reducing the need for lengthy pre-admission hearings, it stated..The survey further noted that repetitive procedural tasks such as the appointment of insolvency professionals and the constitution of the CoC, should be standardised to reduce the burden on the NCLT. The imposition of high costs for frivolous applications could also act as a deterrent, improving efficiency. It suggested that introducing a voluntary mediation mechanism for operational creditors could help resolve defaults without the need for formal admission, reducing the backlog of cases.