IBC offers little respite to resolution of stressed construction companies

01 Sep 2019 CW Staff

Of the 202 companies, 59 have either achieved resolution or ordered liquidation. The other 143 entities are currently in the process to resolve the matter. According to the ratings, a sample of 15 large companies entered the resolution process where financial creditors have made claims amounting to Rs 1.3 trillion. These companies are either close to the 270-day deadline or have crossed it without a proper settlement, which may result in the liquidation of these firms. The liquidation value, however, covers less than 10 per cent of the creditor’s amount as they do not own any sizeable fixed assets and a large part of their borrowings comprise working capital debt. In most cases, even after resolution, the lenders have faced a significant haircut.

“Timely initiation of the resolution process is critical for a construction company to realise maximum value for its creditors,” says Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. “Weak liquidity during the interim period could result in deterioration in operational performance, leading to cost overruns, termination of contracts, liquidated damages, penalties, invocation of bank guarantees, etc, which will further increase financial liability.”

A major factor that impedes smooth resolution is the existence of sizeable, non-fund based exposure. Construction companies are required to give clients bank guarantees (BGs); these are generally much higher than fund-based exposure. For stressed entities, the risk of invocation of a guarantee is also higher as the stretched financial position constricts their execution capabilities, which could lead to underperformance as per contractual obligations. The invocation of the BG converts a non-fund based exposure to a fund-based one and increases the overall liability for the company, thus aggravating the stress faced by the entity. The challenges faced will consequently delay resolution and significantly reduce realisable value.

The resolution of stressed construction companies remains fairly challenging despite the implementation of the Insolvency and Bankruptcy Code 2016 (IBC), according to ICRA ratings. About 202 construction entities facing financial stress have entered the corporate insolvency resolution process (CIRP) and are falling behind considerably, leaving creditors with a high margin to cover up.Of the 202 companies, 59 have either achieved resolution or ordered liquidation. The other 143 entities are currently in the process to resolve the matter. According to the ratings, a sample of 15 large companies entered the resolution process where financial creditors have made claims amounting to Rs 1.3 trillion. These companies are either close to the 270-day deadline or have crossed it without a proper settlement, which may result in the liquidation of these firms. The liquidation value, however, covers less than 10 per cent of the creditor’s amount as they do not own any sizeable fixed assets and a large part of their borrowings comprise working capital debt. In most cases, even after resolution, the lenders have faced a significant haircut. “Timely initiation of the resolution process is critical for a construction company to realise maximum value for its creditors,” says Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. “Weak liquidity during the interim period could result in deterioration in operational performance, leading to cost overruns, termination of contracts, liquidated damages, penalties, invocation of bank guarantees, etc, which will further increase financial liability.”A major factor that impedes smooth resolution is the existence of sizeable, non-fund based exposure. Construction companies are required to give clients bank guarantees (BGs); these are generally much higher than fund-based exposure. For stressed entities, the risk of invocation of a guarantee is also higher as the stretched financial position constricts their execution capabilities, which could lead to underperformance as per contractual obligations. The invocation of the BG converts a non-fund based exposure to a fund-based one and increases the overall liability for the company, thus aggravating the stress faced by the entity. The challenges faced will consequently delay resolution and significantly reduce realisable value.

Resources

09 Mar 2026

Haworth India Hosts Women’s Leadership Panel Series

Haworth India marked International Women’s Day by hosting a leadership roundtable series titled ‘Give to Gain’, bringing together senior women leaders from architecture and design firms, corporates and project management consultancies. The series has been conducted in Delhi and Mumbai, with upcoming sessions scheduled in Bengaluru and Hyderabad on 27 March 2026. Structured as moderated panel discussions followed by audience interaction, the initiative examined the business impact of women’s leadership and the role of inclusive workplaces in supporting professional growth. Manish Khan..

Real Estate

09 Mar 2026

Max Estates Secures RERA For Max One Project

Max Estates has secured RERA approval (UPRERA No.: UPRERAPRJ9759) for its Max One development around Max Towers in Sector 16B, Noida, bringing renewed progress to a project previously stalled following the insolvency of its earlier developer. Spread across around 10 acres with an estimated development potential of about 2.5 million sq ft, Max One is planned as an integrated mixed-use campus combining serviced residences, premium offices, retail spaces and a private club. The project is expected to generate total sales potential of about Rs 20 billion along with an estimated annuity rental inc..

Real Estate

09 Mar 2026

Hindware Introduces Starc Smart Wall Mount Toilet

Hindware has introduced the Starc Smart Wall-Mount Toilet under its Hindware Italian Collection, designed to combine automation, hygiene and contemporary bathroom aesthetics. The model features automatic flushing, sensor-based seat opening and closing, and remote-controlled functions. It also includes an oscillating water spray and warm air dryer for cleaning, along with a self-cleaning nozzle designed to maintain hygiene. Additional features include adjustable heated seating, customisable water temperature and pressure settings, a foot-touch flush system and an LCD control interface. The wa..