Lenders benefit the most from questionable pre-IBC deals

Experts said the recovery was done using a provision of the Insolvency and Bankruptcy Code (IBC), which was not used to this extent in the past, possibly due to lack of awareness among bankruptcy professionals.

Tapping this could aid the recovery process of troubled companies, making more resources available to turn them around.

This is a huge improvement in one quarter – cumulatively, till September, lenders could recover only Suspicious pre-bankruptcy transactions worth over ₹63 crore 18,000 crore, showed data from the Insolvency and Bankruptcy Board of India (IBBI) for the third quarter of FY23.

The trend suggests that companies sliding into bankruptcy will increasingly be questioned about the genuineness of their pre-bankruptcy transactions, particularly those related to questionable valuations or outright fraud.

Data revealed that cases involving ‘voidable’ or ‘avoidable’ transactions The Rs 23,158 crore disposed of in the December quarter accounted for more than half of the petitions filed by resolution professionals that tribunals have disposed of so far.

The lion’s share of Rs 5,020 crore recovered in these cases is So far Rs 5,083 crore has been recovered from such petitions under IBC. However, this is still a drop in the ocean compared to the total value of all voidable deals by insolvent firms, at which resolution professionals have raised a red flag in tribunals – estimated to be approx. 2.8 trillion by the end of December.

Nevertheless, data shows that creditors are increasingly becoming active in questioning past transactions of insolvent firms. Only pre-bankruptcy transactions have higher value in June quarter of current financial year 440 crores were questioned by resolution professionals, but this figure went up 7,828 crore in the September quarter and further increased to approx. 54,000 crore in the December quarter.

Insistence by creditors on looking back to past transactions of sick companies and taking remedial action where possible may help to make more resources and assets available for bankruptcy resolution of the company. The government is encouraging professionals to look at this opportunity so as to minimize losses to stakeholders from suspicious transactions. While carrying out the transaction, known bankruptcy was inevitable which affected the interests of the lenders.

Policy makers believe that if used effectively, this provision would eliminate the incentive for promoters to oppose the entry of bankruptcy proceedings into tribunals, and the revival likely to happen by early initiation of the process. can be improved. Directors can be held liable for losses caused to creditors because of their pre-bankruptcy decisions for up to one year in the case of normal transactions and two years in the case of related parties.