The Insolvency and Bankruptcy Code (IBC) has seen a significant Supreme Court ruling affirming its provisions on Personal Guarantors’ Insolvency Resolution. This means that the assets of personal guarantors can now be used to settle outstanding debts owed to creditors.
However, the recovery rate from personal guarantors under the IBC currently remains low at 5.22 per cent. Even though only 21 cases have yielded approval for repayment plans and realized about Rs 91.27 crore, which accounts for the 5.22 per cent recovery, around 62 cases have been withdrawn, rejected, or dismissed.
The delay in the resolution process is also concerning, with a majority of ongoing Corporate Insolvency Resolution Processes (CIRPs) facing delays of more than 270 days. This delay has increased from previous years, showing a significant backlog in completing these resolutions.
Moreover, a majority of cases have been pending for more than two years, indicating a substantial backlog and prolonged resolution timelines. Despite the implementation of the IBC, the overall recovery rate till Q4FY22 stood at 32.9 per cent. The recovery rate for Q2FY24 remains at 33.01 per cent, showing a marginal increase, but the creditors continue to face a significant haircut of approximately 68 per cent on admitted claims in resolved cases.
The recent Supreme Court ruling is expected to enhance the recovery rate from personal guarantors, but the delays in the resolution process and the extent of haircuts faced by creditors in resolved cases remain significant challenges in the IBC's effectiveness.
(With Agency Inputs)
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