IBBI research report on Effectiveness of Resolution Process in India
Indian Institute of Management, Ahmedabad with support from Insolvency and Bankruptcy Board of India (IBBI) as well as from Ministry of Corporate Affairs (MCA) conducted a research titled “Effectiveness of Resolution Process: Firm outcomes in the post-IBC period” to understand the impact of the resolution process on the firms.
The Insolvency and Bankruptcy Code, 2016 (IBC) has remarkably altered how distressed and defaulting businesses are handled by their stakeholders. By focusing on the revival and continuity of financially distressed entities, the IBC seeks to preserve jobs, protect investments, and maintain the operational viability of such businesses. The report looks at the performance of the firms both before and after the resolution process, to understand if the firms have been able to find their feet in the market. The report also compares the performance of the resolved firms against their peers by sector and size. This comparison tells us the magnitude of the gap and separates the changes that have arisen due to market forces, compared to changes brought about by better management. Some key findings of the report are as follows-
- Average sales have shown an increase of 76% in three years since resolution. While the net margins continue to remain negative, the resolved firms have operationally broken even in the post-resolution period which is a significant improvement from the pre-resolution period.
- There is around 50% increase in the average employee expenses in the three years post-resolution—indicating a higher employment intensity in the resolved firms (listed) in the post-resolution period.
- The trends indicate a significant increase of around 50% in the average total assets of resolved firms post resolution. This is coupled with 130% increase in the CAPEX, which indicate a build-up of tangible assets in the balance sheet of these firms in the post-resolution period.
- A significant revival in the average market valuations in the post-resolution period.
- Liquidity has improved in the post-resolution period by about 80%.
