The Insolvency and Bankruptcy Board of India (IBBI) the regulatory body of IBC, disclosed in its latest quarterly bulletin, that about 80% of insolvency and bankruptcy proceedings involving default of less than Rs. one crore was initiated by the operational creditors. Around three-fourths of all bankruptcy proceedings initiated by operational creditors resulted in the liquidation of the corporate debtor.
Operational creditors such as vendors have filed the bulk of bankruptcy cases so far involving payment defaults of less than ₹1 crore, while financial creditors (Financial Institutions) dragged debt-laden companies to NCLTs/ NCLATs for defaults of up to ₹10 crore, as per official data.
Insolvency cases filed by operational creditors accounted for over half of the total 4,376 cases initiated under the Insolvency and Bankruptcy Code till 31 March 2021, while around 43% of the cases were triggered by financial creditors.
The dominance of insolvency cases by the operational creditors, especially over smaller defaults, reflect how suppliers are struggling with delayed payments from corporate clients - a trend that has only been aggravated during the second wave of the COVID-19 pandemic. Several small firms said their payment cycle got prolonged during the second wave of the pandemic.