NCLT approved record 269 resolution plans in FY24

Of the 269 cases, 88 per cent are from the backlog of earlier years’ admissions.

This has been driven by greater investor interest in turnaround of stressed assets as seen in the resolution plan submissions.

Appointment of new NCLT members has also aided in higher number of resolution cases. However, the moderation in recovery rates and stretched timelines played spoilsport.

Financial year 2023-24 saw resolution plans with recovery rate of 27 per cent of admitted claims, lower than 36 per cent realised in FY23.

Real estate and manufacturing contributed 65 per cent of total plans approved for fiscal 2024. Crisil Ratings further said resolution timelines stretched to 850 days compared with 825 days in the previous fiscal. With demand durability likely across most sectors, the number of acceptable resolution plans received by lenders under NCLT has increased, it added.

Resolution count in the real estate and manufacturing sectors increased by 200 per cent and 22 per cent, respectively, in FY24, compared with the previous year.

In the real estate sector, healthy demand growth for residential real estate in FY24, and expectation of healthy growth over the next two fiscals have sparked interest among resolution applicants.

In manufacturing, resolutions for mid-sized and small companies were in focus as many larger companies were already resolved, said Crisil Ratings.

“The higher case resolution momentum is a result of continuous efforts to improve the resolution throughput rate of IBC through structural reforms, the most prominent being the appointment of 15 additional Nclt members in the later part of fiscal 2023,” Crisil Ratings Senior Director Mohit Makhija said.

Crisil Ratings said, delays in admission of cases by NCLT due to the burden of ongoing cases, along with multiple cross litigations between stakeholders, objections filed by promoters and deferred case hearings, are stretching the resolution timelines.

One of the hurdles in maximising recovery and reducing resolution timelines is the load of ongoing cases at NCLT, which is 4,400 cases as of March 2024.

Lack of a common mediation platform for both promoters and lenders to discuss and find solutions for a quicker settlement was another hurdle in the recovery.

Meanwhile, to reduce the resolution timeline, Insolvency and Bankruptcy Board of India (IBBI) is mulling the introduction of formal out-of-court solutions such as Insolvency Mediation, as per the recommendation of the expert committee constituted by IBBI in January 2024.

This process would entail mediation pre- and post-admission to seek consensus among stakeholders for settlement, thereby preserving the business value of the stressed company through faster resolutions.

“Delay in resolution not only impairs the asset value but also reduces the chance of its revival. Resolutions over the past three fiscals indicate that a one-year delay in resolution depletes the recovery rate by 800-1,000 bps,” Crisil Ratings Director Sushant Sarode noted.