‘IBC’s resolution capacity has increased, but more needed’

livemint.com:

NEW DELHI : The debt resolution capacity under Insolvency and Bankruptcy Code (IBC) should be stepped up by more than three fold to handle about 1,000 cases a year, said a senior government official. Speaking at seventh foundation day of Insolvency and Bankruptcy Board of India (IBBI), the rule maker and regulator, ministry of corporate affairs secretary Manoj Govil said pace of debt resolution under IBC was steadily increasing and expectation is that number of corporate rescue will go up to 300 cases this financial year from 180 cases last financial year.

Govil said while this is a large number, the question is whether it should be sufficient as a study had shown that generally about 5,000 new bankruptcy cases are initiated every year. Initially around 60% of new cases were withdrawn at pre-admission stage itself, but after the government raised payment default threshold for initiating bankruptcy action from ₹1 lakh to ₹1 crore in 2020, larger cases are coming and fewer cases are expected to be withdrawn at the early stage.

However, even if a third of new cases are withdrawn at pre-admission stage and some more subsequently due to factors including settlements, still there would be around 1,500 new cases to be resolved in a year, Govil explained. The secretary explained that the expected resolution of 300 cases this year is a large number and that one could argue that in future, the number of new bankruptcy cases requiring resolution could come down from around 1,500 a year.

These are also a function of economic cycles. “I think we should have a capacity of at least 1,000 cases (a year)," Govil said.