More promoters may take up managerial roles to be part of NPA resolution process
In the last couple of weeks, at least three of the 12 companies including Bhushan Steel, Amtek Auto, Era Infrastructure Engineering have seen immediate changes in their top management.
More defaulting companies may re-designate the promoters to core managerial functions in order to be a part of the resolution process under the Insolvency and Bankruptcy Code. Bankers say action may be taken if the resolution process is disrupted.
In the last couple of weeks, at least three of the 12 companies that were sent for immediate resolution at the National Company Law Tribunal (NCLT), including Bhushan Steel, Amtek Auto, Era Infrastructure Engineering, have seen immediate changes in their top management with quick changes in promoters taking up managerial roles.
Amtek Auto, one of the 12 companies, appointed John Ernest Flintham and Sanjiv Bhasin who stepped down from the Board a day prior to play the role of president of the company and Kunal Sabharwal as Group CFO with immediate effect to get “involved in the day to day affairs of the company when the company also needs it the most”.
It has also postponed (till further notice) their Board meeting, which was due to be held on July 11, pending the resolution process through the case filed at the NCLT.
Many other companies may look at doing it, especially the operating companies. Those companies with a revival plan still underway, may do it to preserve value. Those which have been non-functional may not.
Sunil Srivastava, Deputy Managing Director of State Bank of India said, “They definitely have the right to appoint their candidates and as long as they facilitate the proceedings…we have no issues. But if they interfere and disrupt resolution process, the creditors’ committee or we may ask the resolution professionals to take action as may be required.”
With bankruptcy proceedings due to be started this month, Bhushan Steel, on July 5 got Neeraj Singhal, its Vice-Chairman and Managing Director to take on the chief executive officer’s (CEO) role. The same day, two other whole-time directors, Rahul Sen Gupta and PK Aggarwal, got into executive vice-president roles, the company said in a notice to stock exchanges.
On similar lines, Era Infra Engineering, part of the defaulters’ coterie to be taken to IBC, gave additional charge of a CEO to its managing director Hem Singh Bharana to supervise and manage the operations of the firm.
Another senior public sector bank executive said, “If bankers try to meddle in the process, it may only work against the company.”
Kumar Saurabh Singh, Partner at law firm Khaitan and Co. said, “In cases where changes are happening they want to ensure there is no disruption in the company. Today, if an IRP is appointed to manage affairs of a company, do they have the sectoral capabilities to run a steel or power company? Earlier, it would have been possible but today it may be different." He also said that in the interim, management not being there can dent the functioning. The CEO cannot over-ride the IRP but it is done to largely to support the IRP. If at all there is a conflict, the IRP can take a call but having a vacuum in the company is not good. So this is largely to maintain continuity of the functioning and assist the resolution.
Kalpesh Mehta, Partner at Deloitte, said, “Where it is the case of companies having genuine asset and cash flow mismatches, it would be helpful to assist the business but in cases where promoters have diverted funds, there could be interference. In any case, the JLF (creditors’ committee or the IRP) will have more authority, so they can take a call and they could also ask the promoter CEOs to sit outside.”
Once a default case is admitted at the NCLT by a bank, the bankers or creditors’ committee takes charge and appoints an insolvency resolution professional which then takes control of the company’s management and starts the resolution process to be completed within 6-9 months. If the resolution fails, the company goes for liquidation.According to Singh, IRPs may be having the audit or investment banking expertise but do not have the requisite strength to run a company. Changing management in the interim is not a good idea. Hence, the CEOs are integral to the day-to-day functioning and not just a part of the company’s Board.