Liquidation under IBC on the Rise

By INSOL India - Editorial Team Posted On : October 15, 2020

The IBC was enacted as a landmark legislation to resolve and revive units in the country. It has paved the way for many corporate resolutions and recovery by financial institutions over 45% of their claims. However, recent times have seen an increase in the number of liquidation proceedings being initiated under the IBC. This has been on account of the insolvency of corporate debtors with no assets or an operating business resulting in the lack of interested resolution applicants. The real estate sector is a prime example of this since a resolution applicant for a real estate company would be interested in the submission of a resolution plan only if there are inventories or ‘receivables’ from the allottees. However, at the same time, financial creditors (also being secured creditors) would prefer a minimal haircut. The matter gets even more complicated when taking into account allottees who have mortgaged their allotted flats to other financial institutions. Therefore, even if such a corporate debtor has inventory or ‘receivables’, the complexity of the resolution process deters the submission of resolution plans by interested resolution applicants.