‘Greater transparency needed in insolvency proceedings to raise recovery rates’

New Delhi: The corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) needs greater transparency to help raise recovery rates for creditors, said Insolvency and Bankruptcy Board of India (IBBI) chairperson Ravi Mital said.

Recovery rate refers to the amount recovered by creditors from a company in its insolvency process under the IBC, which creates a time-bound procedure to recover stressed assets. The current recovery rate, which is approximately 32% of creditors’ claims admitted by the insolvency court, is not very bad, Mital said.

The IBBI has helped recover more than ₹3.4 trillion for creditors since its inception in 2016, Mital said.

“We need to improve the quality of our information memorandum (IM). And be as transparent as possible. The more transparent we are, the better results we will get,” Mital said at an event in New Delhi on Friday. “If we start following these kind of things, our recovery rates will increase,” he added.

The Information Memorandum (IM) is a document under the IBC that contains all the details of the debtor. This includes details like the list of creditors and the amount of claims admitted, debt due from related parties, number of workers and employees and liabilities due to them, details of material litigation, latest audited financial statements and audited financial statements for the last two years, provisional financial statements up to a date which is not earlier than fourteen days from the date of application, and liquidation value, among others.

The IM is the most important document in the corporate insolvency process, according the Institute of Company Secretaries of India (ICSI).

Mital’s statement came only days after finance secretary Manoj Govil said the government is working with IBBI to increase the recovery rate under the CIRP, as previously reported by Mint.

The IBBI has helped recover 32% of the creditors’ claims under the IBC till date, but this figure is more than 80% on a fair value basis, Mital said in the convention on resolution and valuation organised by the Institute of Chartered Accountants of India (ICAI), the apex body for chartered accountants.

Mital encouraged resolution professionals to make innovations in the corporate insolvency process.

Resolution professionals should focus on keeping the debtor a “going concern” during the insolvency process, Mital said. A going concern means all the assets, tangibles or intangibles and resources needed for the debtor to continue to operate independently without values being assigned to the individual asset or resource, as per IBBI. This refers to cases where the debtor may be valued more as a whole, compared to the value of its parts.