One step forward, two steps backwards? Lenders fret on new SC ruling on IBC
Supreme Court’s latest ruling on IBC, as it recognised tax departments and government agencies on par with secured creditors under the insolvency law.
Since its introduction in 2016, the Insolvency and Bankruptcy Code has found more and more takers. Yet it remains marred by some structural shortcomings, including constant delays in resolution and haircuts.
Timelines for closure of cases have increased across all categories, data shows.
“Of the over 2,100 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 65 per cent of ongoing CIRPs in June 2023 as compared to 75 per cent in June 2021 and 61 per cent in June 2022,” a CareEdge report shows.
While the overall recovery rate has increased to 31.62 per cent till Q1FY24, for the cases which have been resolved, the creditors have continued to face a haircut of approximately 68 per cent on admitted claims.
SC in its ruling said that statutory creditors like tax authorities and government agencies would be considered as secured creditors under the IBC. Lenders are now worried that following the SC judgment, taxmen may claim a large chunk of the recovery.
The legislative intent of the IBC specifically lowered the primacy of government dues.
“The judgment has created confusion, as clearly the interests of financial lenders have been compromised,” Abhishek Swaroop, partner at Saraf & Partners told TOI.
The recovery rate rose to 33 per cent of admitted claims in the September quarter from 29.5 per cent registered earlier, IBBI data shows. This is amid improved investor interest in a broad range of small and medium enterprises.
Lenders are also concerned that the SC ruling puts the amount due to central and state government below
