New Delhi, May 4 (IANS): Amid concerns over low recovery in many insolvency cases, the Insolvency and Bankruptcy Board of India (IBBI) said on Saturday that haircuts for the creditors in the resolution process could be due to the delay in starting the process and that the matter has to be seen in comparison with the liquidation value.

"What can be done if you have started the process very late...Today about 380 companies have been ordered into liquidation and 80 per cent of them are either in BIFR or defunct companies and there is nothing to recover as the liquidation value is almost zero. Who will give the value? That's why there have been haircuts," IBBI Chairperson M.S. Sahoo said at an Assocham event on Insolvency and Bankruptcy Code (IBC).

Sahoo was responding to a query on higher haircuts becoming an issue with the lenders and policy makers.

He further said, "How much does one get in comparison to its claim and the liquidation value of the company? As per data up to March, the creditors have got up to 195 per cent of the liquidation value, which means the company has been rescued as anything above the liquidation value is a bonus."

There have been various figures of haircuts ranging from 50 per cent to 85 per cent, and concerns have been raised over the amount of haircut being taken by the banks.

The other key issue in insolvency resolution has been the share of operational creditors who feel they do not get their dues in the resolution process as the financial creditors take away the maximum receivables.

In the recent ArcelorMittal-Essar Steel case, the National Company Law Appellate Tribunal (NCLAT) called for rework of payout of dues after hearing an application moved by the Standard Chartered Bank, an operational creditor of Essar Steel.

Sahoo said, "As per data up to December, both operational creditors and financial creditors on an average got about 48 per cent of their claims each. But now the figures are expected to change, particularly since we are waiting for the resolution of Essar Steel which will change the ratios."

He also said all efforts should be made to rescue a viable company and liquidation should be the last option.

In the Arcelor-Essar deal, Standard Chartered is getting only 1.7 per cent of its total dues to Essar Steel, while other financial creditors, which are part of the Committee of Creditors (CoC), are receiving over 85 per cent of their dues.

ArcelorMittal's resolution proposal provides the financial creditors Rs 41,987 crore out of their total dues of Rs 49,395 crore. Operational creditors, under the plan, would get just Rs 214 crore against the outstanding amount of Rs 4,976 crore. If the ArcelorMittal plan is implemented, Standard Chartered will only get Rs 60 crore against its claims of Rs 3,487 crore from Essar Steel.

Last month, the State Bank of India (SBI) moved the Supreme Court challenging the NCLAT suggestion to give more money to Standard Chartered Bank in the Essar Steel case. Earlier, the CoC for Essar Steel had voted in favour of not giving more than Rs 60 crore to Standard Chartered against its claims of Rs 3,487 crore, as it is an unsecured lender. The CoC, however, had agreed to give another Rs 1,000 crore to the operational creditors, over and above the Rs 196 crore repayment decided earlier.