Operational creditors begin to take backseat
NEW DELHI : Operational creditors, who have previously aggressively initiated bankruptcy proceedings against clients for payment delays, are adopting a less confrontational stance of late. Data from the Insolvency and Bankruptcy Board of India (IBBI) for the June quarter shows that operational creditors, who had outnumbered financial creditors like banks by a wide margin in initiating bankruptcy action against defaulting firms in the five years till FY22, have for the first time fallen behind lenders in invoking the bankruptcy code during FY23.
In the year ended 31 March, only 536 bankruptcy cases initiated by operational creditors were admitted to courts, compared to 654 cases by financial creditors, data showed. The trend continued in the June quarter of this fiscal, where only 102 operational creditors initiated bankruptcy action against their clients against 118 lenders who dragged defaulting companies to tribunals invoking the Insolvency and Bankruptcy Code (IBC).
One of the trends in the operation of the Code has been that creditors have used it as a payment-recovery tool more than a corporate-turnaround framework. That is changing.
Experts attributed a host of factors to the shift, including the jurisprudence evolved by courts and adjudicatory authorities over the years, that IBC should not be treated as a recovery mechanism. Also, the fact that operational creditors do not get to be part of the panel of creditors set up under a tribunal’s watch to rescue the defaulting company is a disincentive for them to invoke the Code.
“Compared to financial creditors, operational creditors have various avenues to recover their claims such as recovery suits, arbitration, etc. that offer chances of recovery of full claim
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