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Lenders fret as insolvency cases miss deadlines, hope delays yield better returns

But despite the delays experts believe the courts are working toward extracting the maximum value of these assets.

May 04, 2018 / 05:06 PM IST
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The fate of a few of the 12 stressed accounts facing insolvency proceedings — including Essar Steel and Binani Cement — hangs in the balance as court cases are delaying the resolution process beyond the stipulated deadline of 270 days.

Despite the delays, experts feel the courts could help lenders extract  the maximum value from these assets.

The Insolvency and Bankruptcy Code (IBC) aimed to resolve bad loans within a tight timeframe of 180 days (extendable by 90 days). But, in most cases the deadlines have been missed.

According to Sameer Kaji, Senior Advisor to Binani Industries, the key aim of the IBC, as per its preamble, is to maximise the shareholders' benefits. "It has nothing to do with a specific resolution applicant or lenders," he said. Secondly, he noted, "there is no precedence in such cases and hence it will evolve. In the initial four or five instances, there will a slight delay beyond 270 days," he said.

Kaji further said, "Even as the Section 29 (A) of the Code ( prevents promoters of defaulting companies from bidding for stressed assets) is a contention, leaving that aside, maximization of value is important and will become critical for all other cases.”

In June last year, the Reserve Bank of India identified 12 large stressed corporate accounts to be resolved under IBC. So far, just two accounts — Bhushan Steel and Electrosteel Steels — have managed to get a buyer for their assets.

The balance 10 accounts have not managed to find a buyer, under the IBC guidelines.

Essar Steel bidders ineligible

After multiple hearings at the High Court and National Company Law Tribunal (NCLT) Essar Steel's lenders Wednesday asked both ArcelorMittal Netherlands NV and Numetal Mauritius to clear their dues to be considered eligible resolution applicants for Essar.

One of the bankers aware of the development said, “The meet on Wednesday did not yield any results. Both the companies presented their views and not much was offered on the table. For us, we need the money but will have to follow due process of the IBC. Both bidders have decent offers but are ineligible for now, how do we move ahead?”

Creditors to the Ravi Ruia-promoted Essar steel asked both ArcelorMittal and Numetal to provide a solution within seven days. In response, ArcelorMittal has said it may consider paying off about Rs 8,000 crore dues of Uttam Galva Steels as a ‘goodwill gesture’. Numetal has not responded.

While the 270-day deadline has already been missed, the NCLT has asked lenders to consider both the bids as per the first round.

Binani Cement lenders get NCLT order

Binani Cement's resolution hit a roadblock after rival bidder UltraTech Cement challenged the committee of creditors (CoCs) decision to sell the company to Dalmia Bharat-controlled Rajputana Properties. The Kolkata bench of the insolvency court Wednesday ruled in UltraTech’s favour.

The tribunal has now asked the CoC to consider a revised offer from UltraTech, which is to place a fresh bid before Binani's resolution professional in three days. The NCLT has also allowed Rajputana Properties to match UltraTech’s revised offer if it wants to.

The NCLT has extended the resolution process until June 24, while the 270-day deadline has ended in April itself.

Other Cases

Bhushan Power and Steel was another such case where the NCLT asked lenders to consider bids from Sanjeev Gupta-led Liberty House which lenders claimed were received after the deadline.

Similarly, lenders to Lanco Infratech rejected the bid of Thriveni Earthmovers, which inches closer to the resolution deadline of May 4. The company's resolution professional has filed an application for liquidation.

Teething troubles

“We have followed the due process of the IBC. The courts need to define the process as there are different interpretations. Moreover, the courts keep hearing the corporates and our deadlines keep getting pushed…I think these are teething problems and this will get clearer over time," one of the lenders said.

Prem Rajani, managing partner at law firm Rajani Associates thinks the 270-day deadline may, under certain circumstances, exclude the time spent during appeals (more on interpretation of a law point) pending in the Supreme court or various other high courts.

"The objective of the IBC is not to liquidate the asset, but to rehabilitate the company and maximize its value for the creditors and hence, the Courts will work out a way to help it resolve within a stipulated time. So, the only way to keep up with the deadlines is to keep the time taken on genuine litigations out of the resolution period," Rajani said.

In a post-results conference, Dipak Gupta, Joint Managing Director of Kotak Mahindra Bank pointed out, “Banks need to make a judgment, which in practice, will get the value which is higher than liquidation value. Liquidation process has also not been tested. There is nothing stopping a resolution by a liquidator. Therefore, you see some of these play out even in the liquidation process.”

Lenders hope delays do not become a norm and even if there are delays they result in getting the best value of the stressed assets.

Beena Parmar
first published: May 4, 2018 07:32 am