The share of insolvency proceedings initiated by debtors is declining over time

Since the introduction of the Insolvency and Bankruptcy Code, the percentage of corporate insolvency resolution (CIRP) initiated directly by corporate debtors has declined.

According to data from the Insolvency and Bankruptcy Board of India, nine CIRPs were activated by operational creditors, eight were initiated by financial creditors and 22 were triggered by corporate debtors.

2.250 CIRPs were initiated by operational creditors as of March 2021. 1.887 were initiated financial creditors. Corporate debtors had triggered 277.

In June 2021, the number of resolutions initiated by operational creditors climbed to 2,313, while those initiated by financial creditors amounted to 1,942. Corporate debtors had also triggered 285 CIRPS.

According to the IBBI data, operational creditors triggered 50% of the CIRPs. Financial creditors followed closely at 42.77%. The remaining CIRPs were triggered by corporate debtors.

However, only 80% of CIRPs with an underlying default less than Rs 1 million were initiated by operational creditors. While about 80% of CIRPs with an underlying default greater than Rs 10 lakh were initiated by financial lenders,

“The share of CIRPs initiated by CDs (corporate creditors) is decreasing over time. They often initiated CIRPs that had very high underlying defaults,” stated the IBBI newsletter for April-June 2021.

Further, the IBBI stated that 47% of the CIRPs which were closed ended up in order for liquidation, compared with 14% ending up with a resolution program.

However, 75% of the CIRPs that ended in liquidation were either earlier with the Board of Industrial and Financial Reconstruction (or were defunct).

Before they were admitted to CIRP, most corporate debtors had lost their economic value. These corporate debtors were estimated to have assets worth around 7 percent of their outstanding debt.