Lenders push 725 companies to liquidation despite having resolution plan

Even as resolution plans were kept before lenders under the Insolvency and Bankruptcy Code (IBC), they have opted for liquidation in most cases.

Out of over 1,000 cases that were ordered for liquidation under the IBC, lenders to 725 companies decided that liquidation would be the best option, as per data with the Insolvency and Bankruptcy Board of India (IBBI).

Some of the big cases include Vijay Mallya’s UB Engineering, Monnet Power, and ABG Shipyard. In these cases, lenders voted against resolution plans, like in the case of ABG Shipyard where lenders were wary of Liberty House’s ability to honour commitments.

ABG Shipyard and Monnet Power were referred to the insolvency court after the Reserve Bank of India (RBI) instructed banks to do so.

“In a lot of cases, we recommended liquidation because no work was going on in these companies for years and no resolution plan could revive them,” a senior official from a leading lender said. Many cases undergoing resolution under the IBC have been transferred from the Board for Industrial and Financial Reconstruction (BIFR).

“There is also an uncertainty on whether we could get our dues from the new buyer as many plans offer staggered payments,” another lender said. “In such cases, lenders are virtually lending more.”

“In such cases, it is best for all lenders to sell land, any assets they have and get whatever they can through the IBC.”

Lenders feel that it is better to recover what they can through the IBC instead of an out-of-court settlement. Claims from lenders for these companies under liquidation are over Rs 6,64,000 crore.

“This concept of liquidation as a going concern has led lenders to take such decisions. Sometimes resolution plans are so bad that liquidation as a going concern would fetch better recovery,” says Mamta Binani, an insolvency professional.

Meanwhile, with the Supreme Court allowing personal insolvency cases against personal guarantors to these defaulting companies, bankers are focusing on this part of the IBC to recover dues. “We have filed cases against many promoters after giving them 14 days to respond to our demand notice,” said a public sector banker.

Even before the Supreme Court order allowing the government’s policy to allow personal insolvency, lenders had filed cases for a debt amount of Rs 17,004.15 crore with a personal guarantee of Rs 12,383.11 crore.

501 companies were sent to liquidation because nobody was interested in acquiring them. Since a lot of cases came from the BIFR, they were already defunct, due to which these companies did not attract even a single bidder.