A sound and efficient insolvency regime is important for better investment, innovation,
economic growth, and cost of credit in the market. The insolvency regime has a direct
bearing on allocation of resources in an economy. Hence, for overall economic growth and
development, a robust insolvency ecosystem is extremely crucial. The World Bank and
Organisation for Economic Co-operation & Development (OECD) have developed certain
indicators to assess and compare the insolvency regimes of different nations. One of the
key parameters is the time taken to resolve the insolvent enterprise.
This research project aims to examine the stagewise delay in Corporate Insolvency
Resolution Process (CIRP) and explore the relationship between the respective sector and
the delay occurring in the CIRP. It also attempts to analyse the relationship of delay in
CIRP with the debt size of the Corporate Debtor (CD). A two-pronged approach was
adopted to study this. Firstly, data pertaining to 1189 companies (resolved companies =
224 and liquidated companies = 965 as of March 2020) was analyzed based on information
received from the CIRP Forms 1,2,3,4,5 and 6. Secondly, a survey of those insolvency
professionals was conducted who have handled at least one CIRP. Total respondents for
the survey were 431 which is 37 % of the total population data.
For the first approach of data study, the sample was divided into two groups; delayed
group that exceeded the prescribed timeline of completion of CIRP of 270 days and
controlled group which completed its CIRP within the prescribed timeline.
The study finds that the delayed group takes almost twice as long as prescribed time for
the CIRP, with the maximum delay being observed in the following stages:
- Issue of Expression of Interest (EOI)
- Issue of final list of Resolution Applicants (RAs)
- Issue of Request for Resolution Plan (RFRP)
- Approval of resolution plan.
In the above stages, there was a marginal to no delay in the controlled group, except for
the issuance of RFRP. While the data shows no reason for the delay, the survey indicates
that the complexity of the sector, diverse group of creditors and competing claims seem to
be the most obvious reasons.
Admission of Application for CIRP takes much longer than the prescribed timeline, both
in delay and control groups. Also, the percentage contribution of each stage to the total
delay as mapped reflects that 64% of the total delay is caused in taking approvals of the
resolution plan from CoC and Adjudicating Authority. This percentage becomes as high
as 81 when percentages are calculated only for the Delayed Groups. It is important to note
that most of the CDs also get extensions at this stage.
Submission of claim is found to be completed before the prescribed timeline. The
Constitution of Committee of Creditors (CoC) takes almost the same time as prescribed
by the model timeline, that is, 23 days. As per the model timeline prescribed by the
Insolvency and Bankruptcy Code, 2016 (Code/IBC), the first meeting of CoC should be
conducted within 7 days of the constitution of CoC thereby indicating that the first
meeting of CoC should be held within 30 days of commencement of the process. The first
meeting was conducted almost in time. What is important to note here is that the
appointment of Resolution Professional (RP) should have taken place in the first meeting
which is not the case.
The study finds that while the issue of information memorandum is taking place within
the prescribed timeline i.e. 54 days issuance of EOI is significantly delayed in companies
whose resolution has not been completed within the prescribed timeline. Also, there is a
delay of almost 30 days in the issue of the provisional list of RAs for the delayed group.
Similar delay is noted in preparation of the final list of RAs wherein the delayed group
takes almost additional 75 days. If this delay is read considering delay in issuance of EOI
or its multiple issuances, it can be safely concluded that there is scarcity of good resolution
plans, thereby resulting in the paucity of the RAs who could participate in sale of stressed
assets. This clearly indicates that there needs to be concerted efforts made in the
developing market for stressed assets in India. Also, it is trite to mention that if there is
paucity of players in the market who could participate in CIRP, the restrictions of Asset
Reconstruction Companies (ARCs) may not be entirely conducive for the overall growth
of the Indian insolvency ecosystem.