A study Effectiveness of the resolution process: Firm outcomes in the postIBC period by IIM Ahmedabad, commissioned by the IBBI, reveals that firms undergoing resolution under the Insolvency and Bankruptcy Code (IBC) demonstrate significant operational and financial recovery.
Post-resolution, these firms recorded an average 89% increase in sales and a 106% surge in capital expenditure (CAPEX) over five years, signalling a robust return to asset growth. The study highlights that firms transition to leaner balance sheets, with the asset turnover ratio rising from 0.37 at resolution to 0.87 by the fifth year. Critically, the process has also boosted employment intensity, with employee expenses rising by 71.91% and employee strength per unit of total assets increasing by 200%. Despite macroeconomic shocks, the market capitalisation of listed resolved firms grew from ₹2.8 lakh crore to ₹9 lakh crore, reflecting renewed investor confidence.
Key Post-Resolution Performance Metrics (T+5 Years)
Profitability Rebound: Operating margins shifted from -26% at bankruptcy to 8% in five years, effectively narrowing the gap with healthy industry peers.
Liquidity Gains: The current assets to current liabilities ratio improved by 106%, rising from 1.01 to 2.09.
Creditor Recovery: Financial creditors realized an average recovery rate of 43%, while operational creditors saw 25%.
Operational Efficiency: Significant improvements were noted in inventory turnover and the cash conversion cycle, reflecting superior working capital management.
Cost of Delay: The study found a non-linear relationship between resolution expenses and time; for instance, expenses reached 47% of realizable amounts in the Wholesale and Retail Trade sector due to longer durations.
Policy Relevance: Lessons for Indian Insolvency Frameworks
Scaling Timely Resolutions: The finding that resolution expenses increase non-linearly with time reflects growth in the evidence base for adhering to strict IBC timelines to maximize creditor recovery.
Internalising Employment Intensity: Policymakers can utilize the 71.91% rise in employee expenses as a primary metric to demonstrate that the IBC is not just a debt recovery tool but a "job-saving" mechanism for the economy.
Bypassing Capital Stagnation: The 106% surge in CAPEX is supported by the need to encourage new promoters to redirect investments into productive assets rather than keeping them locked in distressed entities.
Supporting MSME Creditors: The lower recovery rate for operational creditors (25%) highlights a policy area for potentially strengthening the safeguards for small suppliers in the resolution waterfall.
Leveraging Market Rerating: The three-fold increase in market capitalization suggests that the IBC has successfully "de-stigmatized" resolved firms, making them attractive for global and domestic institutional capital.
Follow the Full Study Here: IIMA: Effectiveness of the Resolution Process – Firm Outcomes in the Post-IBC Period (April 2026)
