• Notification Date: 24-02-2025
• Notification No: N/A

Insolvency Cases by Operating Creditors Fall 41% as Out-of-Court Settlements Increase

Operational creditors' insolvency petitions lodged by raw material suppliers and vendors—dropped by 41% in the current year, reflecting a pattern of faster, out-of-court wind-ups. Through December 2024, as many as 187 insolvency petitions were admitted by the National Company Law Tribunal (NCLT) against 316 during the comparable period last year. Operational creditors are withdrawing a growing number of cases after retrieving their dues, usually below ?10 crore, to steer clear of formal insolvency proceedings.

Experts blame the decline on two grounds: the increase in the minimum default amount from ?1 lakh to ?1 crore in March 2020, and the exorbitant fees of filing formal insolvency proceedings. Small and medium businesses, which are the largest chunk of operational creditors, will not be able to go for the time-consuming and costly bankruptcy settlement process.

Even while operational creditors also continue to keep proceeding on filing cases, they prefer persuading defaulters to make payment. In instances of larger defaults, insolvency proceedings continue anyway. Formal insolvency filings remain dominated by financial creditors at 358 in the year.

Operational creditors never recovered as much in insolvency cases—25.4% of dues, compared to 31.4% in case of financial creditors. It reflects operational creditors' willingness for faster resolution than the long-winding legal battles.