According to IBBI’s evaluation, if debt resolution extends beyond 1,200 days (over three years), the assets fetch approximately 21% of recognized realizable value, a person aware of the findings said.

IBBI’s internal assessment confirms the widely accepted outlook for distressed firms in bankruptcy: a gradual fall in value of assets. The longer the delays, the more significant the loss in asset value, leading to higher haircuts for creditors. The report relies on data from tribunals.

Experts said value erosion is common in distressed companies, especially those with outdated machinery and technology, failing to make required capital expenditure in time. “It varies from sector to sector. In steel sector, there is demand for assets. However, in sectors such as white goods or telecom timely technology upgrade is crucial and if the required capital expenditure for upgrading technology has not been made on time, value erosion could happen. Also, in concession-based projects in oil and gas or infrastructure, the value could get eroded if the concession or licence remains unutilized during corporate insolvency resolution period,” Anoop Rawat, partner, insolvency and bankruptcy, at law firm Shardul Amarchand Mangaldas & Co., said.

That said, there is a crucial factor that could retain the asset’s value, he said, “One way to retain value is by making available interim funding for critical operational requirement on time, whether for regular working capital or for quick upgradation of technology.” In certain cases, however, value could appreciate over time if a business has premium land holdings, he said.

According to IBBI data, the average time for a restructuring plan for distressed firms under IBC to be approved has been 653 days, while the closure of bankruptcy resolution leading to liquidation takes an average of 472 days. As of September end, out of over 7,050 cases admitted in the tribunals, 808 have undergone a restructuring plan, and 2,249 have concluded in liquidation. About 2,000 cases are still pending. The remaining admitted cases have either been settled or stand withdrawn.

The Centre expects resolution of 300 cases in 2023, up from 180 last year. It is looking to step up institutional capacity to handle 1,000 cases each year. An estimated 5,000 bankruptcy cases are initiated every year. Email queries to the corporate affairs ministry and IBBI on Friday didn’t elicit any response till press time.

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Updated: 26 Nov 2023, 10:08 PM IST