Tag: nclt

Haircut under IBC rises to 60% in fiscal 2021, half the closes cases liquidated, BFSI News, ET BFSI

Banking & Finance

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More than half of the total 4,376 cases under the Insolvency and Bankruptcy Code have been closed with the rest undergoing resolution.

Almost half of the 2,653 cases closed by lenders under IBC in fiscal 2021 have ended in liquidation while only 13 per cent were resolved, according to the quarterly bulletin of the Insolvency and Bankruptcy Board of India.

About 23 per cent of the closed cases are either under review or under appeal.

In 16 per cent of cases, the companies were handed back to the promoters after they cleared part of their dues under Section 12A of the insolvency act.

About 43 per cent of cases admitted so far are filed by the financial creditors while the rest 51 per cent of the admitted cases were initiated by operational creditors.

Haircut rises

In the resolved cases, the haircut, or the loss to banks on their claims, rose to 60 per cent in fiscal 2021, from 55 per cent average in the previous years.

In the March 2021 quarter alone, haircut rose to a whopping 74 per cent of the claims made by the lenders against the defaulters.

About 79 per cent of the ongoing cases till March this year have already passed 270 days since admission. Experts say delay causes erosion in the value of assets and increases chances for liquidation.

The IBC saw an addition of 499 new cases in the last financial year, where the process was suspended due to the Covid pandemic.

Liquidation

About 80% of bankruptcy proceedings involving a default of less than Rs 1 crore were initiated by operational creditors, while 80% of the cases with defaults of over Rs 10 crore were initiated on applications by financial creditors.

Around three-fourths of all bankruptcy proceedings started by operational creditors resulted in the liquidation of the corporate debtor while in case of proceedings initiated by financial creditors that have been concluded, nearly half of the businesses have faced liquidation.

About 74.37% of the corporate insolvency resolution process ending in liquidation (946 out of 1272 for which data are available) were earlier with BIFR and / or defunct.

During the quarter January-March 2021, 149 corporate insolvency resolution process (CIRPs) ended in orders for liquidation, taking the total CIRPs ending in liquidation to 1277, excluding 10 cases where liquidation orders have been set aside by NCLT, NCLAT or courts.

Of these, a final report has been submitted in 240 cases. There are 1,037 ongoing liquidation processes.

During January-March, 2021, 34 more liquidation processes were closed, taking the total number of closures by dissolution, sold as a going concern or compromise or arrangement to 138.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.



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Banks eye family trusts of defaulting tycoons to recover loans, BFSI News, ET BFSI

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Armed with the Supreme Court go-ahead to seize assets of personal guarantors, banks are looking to recover money parked in family trusts.

Many of the family trusts created by businesspeople are meant primarily to protect their assets from potential claims related to their companies, such as in bankruptcies. Neither lenders nor agencies such as the Enforcement Directorate or income tax department have been able to penetrate these asset protection trusts.

The SC verdict

The Supreme Court had upheld the validity of the Centre’s notification allowing banks to proceed against personal guarantors for recovery of loans given to a company under the Insolvency and Bankruptcy Code (IBC).

A bench comprising justices L Nageswara Rao and S Ravindra Bhat held that approval of resolution plan under the IBC does not discharge personal guarantors of their liability towards the banks.

“In the judgment, we have upheld the notification,” Justice Bhat said while reading out the conclusion of the judgement which decided as many as 75 petitions pertaining to the validity of the notification.

Petitioners had challenged the November 15, 2019 notification issued under the IBC and other provisions in as far as they relate to personal guarantors to corporate debtors.

Upholding the validity of the notification, the top court ruled that initiation of an insolvency resolution plan for a company does not absolve corporate guarantees given by individuals from paying up the dues to financial institutions.

The IBC law

Under the IBC law, banks can go after the family trusts formed by promoters or those who have given personal guarantees, provided there is a fraud or siphoning of money involved as per provisions of the IBC.

Promoters of several Indian companies had earlier accused their professional managers of fraud and diverting company funds. But they would not get any respite from the IBC as lenders will now invoke their personal guarantees.

SBI action

SBI was one of the respondents to the 74 petitions and challenges by promoters on invocation of personal guarantees. It has been in the forefront of invoking guarantees of promoters of defaulting companies. It had invoked Rs 1200 crore of guarantees given by Ambani for defaulting companies Reliance Communications and Reliance Infratel.

In January ET had reported SBI had also approached the Mumbai bench of the NCLT to initiate guarantees by the Videocon Indsutries’ Dhoot brothers totalling Rs 11,500 crore.

It had also taken Bhushan Power & Steel promoter Sanjay Singal to court to recover Rs 12,276 crore dues to the bank for which he was a guarantor. All these promoters had challenged these actions in court.



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NCLAT stays NCLT order on DHFL

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In a relief to the ongoing resolution process of Dewan Housing Finance Corporation Ltd, the National Company Law Appellate Tribunal (NCLAT) has stayed an order by the National Company Law Tribunal (NCLT), which had directed the lenders to consider the offer made by Kapil Wadhawan.

The NCLAT heard the plea by the Committee of Creditors of DHFL challenging the May 19 order of NCLT on Tuesday.

Also read: DHFL lenders appeal against NCLT order on Wadhawan offer

Both the Committee of Creditors of DHFL as well as the Administrator had filed separate applications challenging the NCLT order to consider the offer made by its former promoter Kapil Wadhawan within the next 10 days.

Meanwhile, the Piramal Group on Tuesday also filed a separate appeal in the NCLAT challenging the NCLT order on DHFL.

The lenders termed Wadhawan’s proposal as flimsy, replete with misrepresentations, falsehoods, without financial backing or commitments, and tendered in disregard of the scheme of the insolvency code.

The administrator questioned the NCLT order’s timing given that the Bench is to retire in June and any delay could lead to a situation where the case would have to be re-argued before a new Bench. The application sought a direction from the NCLAT to the NCLT to pass an order on the offer by the Piramal Group within one week.

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Banks file application in NCLAT on DHFL

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The Administrator and lenders to troubled Dewan Housing Finance Corporation Ltd (DHFL) have filed two applications in the National Company Law Appellate Tribunal (NCLAT).

These have been filed challenging the National Company Law Tribunal order which directed DHFL’s Committee of Creditors to consider the offer made by its former promoter Kapil Wadhawan within the next 10 days.

Sources said that there are concerns that such a move will derail the resolution process of DHFL and could also set a bad precedent.

In his second settlement offer, Wadhawan had offered ₹91,158 crore, which is over ₹50,000 crore more than the ₹34,250 crore being offered by Piramal Enterprises Ltd.

The CoC, led by Union Bank of India, in its application has asked that the May 19 order of the NCLT should be set aside. Further the NCLT should also clear the resolution plan for DHFL.

DHFL Administrator R Subramaniakumar filed his application challenging the NCLT order on May 23.

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Lenders likely to move NCLAT over DHFL

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Lenders to troubled Dewan Housing Finance Corporation Ltd (DHFL) are looking at various options and are expected to file an appeal with the National Company Law Appellate Tribunal (NCLAT) on Monday.

The move comes after the National Company Law Tribunal asked DHFL’s Committee of Creditors to consider the offer made by its former promoter Kapil Wadhawan within the next 10 days. In his second settlement offer, Wadhawan had offered ₹91,158 crore, which is over ₹50,000 crore more than the ₹34,250 crore is being offered by Piramal Enterprises.

Also read: Allowing Wadhawan to present settlement offer could derail DHFL resolution process: RBI

The Reserve Bank of India in its affidavit to the NCLT had said that permitting Wadhawan to make an offer for DHFL could derail the company’s resolution process. Bankers too are not in favour of such a move and have been left worried by the NCLT decision.

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NCLT asks DHFL lenders to consider Wadhawan’s offer

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The resolution of scam-hit DHFL has taken a new twist, with the National Company Law Tribunal (NCLT), Mumbai, asking the company’s committee of creditors (CoC) to consider former Chairman & Managing Director Kapil Wadhawan’s resolution plan within next 10 days.

This comes even as the Tribunal is weighing DHFL (Dewan Housing Finance Corporation Ltd) Administrator’s application on the resolution plan of Piramal Capital & Housing Finance Limited (PCHFL) as approved by the CoC.

The Administrator had filed the aforesaid application for NCLT’s approval on February 24, 2021, in the wake of receipt of “no objection” from the Reserve Bank of India (RBI) as per Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.

The CoC by majority voting approved the resolution plan submitted by PCHFLin January 2021 under section 30(4) of the Insolvency & Bankruptcy Code

Bankers say since PCHFL’s resolution plan has been approved by majority of the lenders, it is unlikely that their decision will change.

Banks expect to receive initial proceeds from DHFL’s resolution from PCHFL, which is a wholly-owned subsidiary of Piramal Enterprises, in the second quarter.

Piramal Enterprises Ltd (PEL) said PCHFL has received fit and proper approval from the Reserve Bank of India on February 16, 2021 and approval from Competition Commission of India for the acquisition of DHFL on April 12, 2021.

“An application has been submitted to NCLT for the approval of the resolution plan. The implementation of the resolution plan is subject to the terms of the LOI (letter of intent) and other applicable regulatory approvals,” PEL said in a regulatory filing last week.

The claims of lenders admitted in NCLT in the case of DHFL aggregated to about ₹81,000 crore.

PEL, in its third quarter FY21 results, said that the total consideration for DHFL was ₹34,250 crore, which includes an upfront cash component of ₹14,700 crore (towards assets including the cash on DHFL’s balance sheet) and a deferred component (non-convertible debentures) of ₹19,550 crore.

Wadhawan’s proposal

Wadhawan, in a letter to DHFL Administrator and CoC, claimed that his proposal (made in December 2020) to CoC, provides for full repayment of the principal to all the creditors.

His proposal includes an upfront payment of Rs 9,000 crore in cash out of the free cash on the books of DHFL; Rs 31,000 crore to be paid within seven years in equal annual installments with 8.5 per cent interest.

Further, the aforementioned proposal also includes Rs 12,000 crore to be repaid within seven years in equal annual installments following a one-year moratorium with 11 per cent interest after two years of interest moratorium; and Rs 18,000 crore to be repaid within five years in equal annual installments following a five year moratorium with 11 per cent interest.

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RBI opposes IBC suspension even as demand from banks, industry grows, BFSI News, ET BFSI

Banking & Finance

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The Reserve Bank of India RBI is not in favour of a fresh suspension of the Insolvency and Bankruptcy Code (IBC) in view of the resurgence in Covid infections shutting down parts of the economy again.

The central bank is of the view that suspension will only show lower non-performing assets. While the government has to take a final decision, the widespread distress after the restrictions may weigh on its mind.

Officials feel the demand was being amplified by a section of the industry that was facing stress even before the pandemic hit India. Besides, by all accounts, the corporate performance has been encouraging up to the March quarter and the assessment is that the recovery this time will be faster than last year, given that businesses have not completely shut down and supply chains remain open.

Growing clamour

Lenders, however, want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks were planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Growing stress

The corporate sector has pitched for a fresh suspension, arguing that there will be additional stress in the wake of the lockdown announced across most states to check the surge in cases, which are still rising by over three lakhs daily.

Industry body Assocham has urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

The Indian hotel industry has taken a hit of over Rs 1.30 lakh crore in revenue for the fiscal year 2020-21 due to the impact of the COVID-19 pandemic, the Federation of Hotel & Restaurant Associations of India (FHRAI) said on Sunday.

The apex industry body said it has submitted representation to the Prime Minister and a few other union ministers urging immediate support from the government to save the hospitality sector from imminent collapse and has requested for several fiscal measures for this.



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Covid surge sparks demand for Insolvency and Bankruptcy Code suspension yet again, BFSI News, ET BFSI

Banking & Finance

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With the Reserve Bank of India unveiling a rescue package that stops short of offering loan moratoriums, lenders now want suspension of the Insolvency and Bankruptcy Code, which was reanimated on March 24 after being suspended for a year.

Banks are planning to petition the government to keep the IBC process under suspension to help companies restructure their finance to face the renewed vigour of the pandemic, according to a report.

Also, the court proceedings are hampered due to the pandemic with courts hearing only urgent matters.

Experts are seeking an extension of IBC to 3-6 months and taking a call after that depending on the situation.

Industry body Assocham has also urged the government to reimpose a moratorium on taking debt-ridden firms to the NCLT under the IBC till December this year following the severe second wave of coronavirus. In a representation to the Finance Ministry, the chamber said that given the increasing pressure on businesses, it would be imperative to extend the NCLT (National Company Law Tribunal) moratorium to ensure that the pandemic “does not wreak havoc” on the economy.

Virtual hearings

With Maharashtra in partial lockdown to curb Covid-19 infections, experts have said that some high-stake bankruptcy cases in Mumbai could be affected by virtual hearings.

The disposal rate in virtual trials is quite low and could add to the pendency of cases if the state’s restrictions persist for a longerduration. While there has been no official notification, all case hearings in the state have shifted to the virtual platform.

There were more than 20,000 cases pending with the National Company Law Tribunal as of December 2020 and a bulk of them are with the Mumbai NCLT.

With the IBC suspension having been lifted, the number of applications is bound to increase rapidly. Online hearings could add to the existing pressure on the tribunals, which may lead to a further slowdown of resolutions through the IBC process.

The government recently issued an ordinance to provide a pre-packaged scheme – an efficient alternative insolvency resolution framework – for micro, small and medium enterprises (MSMEs). This is set to quicken the resolution process and reduce litigation.

The status of IBC cases

Out of the total 3,774 cases or corporate insolvency resolution processes (CIRPs) filed since the Insolvency and Bankruptcy Code (IBC) came into existence in 2016, 1,604 cases, or 43 percent have closed, by way of resolution, liquidation or other means. The rest 57 percent are ongoing with many overshooting the 330-day maximum time limit.

Of the 1,604 closed cases, only 14 percent have found a resolution, whereas 57 percent have ended in the liquidation of the companies.

Interestingly, the 72% cases of CIRPs ending in liquidation were already defunct and under the Board for Industrial and Financial Reconstruction.

About 312 cases have been closed on appeal or review or settled, 157 have been withdrawn; 914 ordered for liquidation and 221, saw approval of resolution plans.

The recovery rate for resolved cases under IBC is 44% with Rs 1.84 lakh crore recovered so far of the Rs 4.13 lakh crore admitted claims.

In case of the 12 large defaulters identified by RBI, the creditors recovered Rs 1.36 lakh crore from eight cases that have been resolved so far, with recoveries ranging from as low as 17 percent of claims in the case of Alok Industries, to almost 100 percent for Jaypee Infratech.



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BoM aims to resolve 20-25 stressed MSME loans under pre-packaged resolution process, BFSI News, ET BFSI

Banking & Finance

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MUMBAI: State-owned Bank of Maharashtra is looking at resolving 20-25 stressed micro, small and medium enterprise (MSME) accounts under the pre-packaged insolvency resolution process, a senior bank official said.

Earlier this month, the government had introduced a pre-packaged insolvency resolution process for stressed MSMEs by amending the insolvency law.

Under a pre-packaged process, main stakeholders such as creditors and shareholders come together to identify a prospective buyer and negotiate a resolution plan before approaching the National Company Law Tribunal (NCLT).

“With the outbreak of the COVID crisis, the stress on hospitality, luxury retail, tour operators, lodging and restaurant operators has increased considerably. I expect around 20-25 stressed MSME accounts to be resolved under the pre-packaged insolvency resolution regime in the coming months,” Bank of Maharashtra’s general manager (credit – large and mid corporate, MSME) Sanjay Rudra said.

He was speaking at a webinar organised by MVIRDC World Trade Center, Mumbai and All India Association of Industries.

He said under the pre-packaged insolvency resolution system, the government has given an opportunity for MSMEs to resolve their stress at an early stage while holding control over their business.

“Now, MSMEs should maintain complete transparency in the whole resolution process to regain trust and confidence of lenders,” Rudra said.

Speaking at the webinar, AZB & Partners cofounder Bahram N Vakil said MSME promoters should file for resolution with the NCLT only after having a robust base plan.

“If the promoters could come out with a resolution plan with a minimum possible haircut for operational creditors and if it is also acceptable to the committee of creditors, then the chances of such plans being challenged in the Swiss challenge auction are less,” he added.

Emphasising that MSME promoters and bankers should work on a reasonable price discovery of the underlying asset, Vakil pointed out that more often, the fair value estimation of the underlying asset is the sore point of litigation among contending parties.



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Experts believe prepacks will expedite insolvency resolution as govt readies move, BFSI News, ET BFSI

Banking & Finance

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The government is finalising a pre-packaged insolvency resolution process in anticipation of the rise in bankruptcies due to the pandemic.

According to reports, the government is likely to start with micro, small and medium enterprises as it sees a rise in bad loan cases with the lifting of suspension on insolvency proceedings against Covid-related defaults last month.

“Govt is working with regulators to bring out pre-pack and other resolutions of MSME and other sectors. A lot of work in progress has been already achieved, it is only when some part of implementation issues has been watched closely, so once the whole mechanism is in the market, it is well accepted by the market, Pawan Kumar, Deputy MD, IIFCL, said.

As bad loans are feared to top 13.5% of total advances due to the pandemic such a move has become urgent, experts said.

Under the pre-packaged process, main stakeholders like creditors, shareholders and the existing management or promoter can come together to identify a prospective buyer and negotiate terms of a resolution plan, before submitting it to NCLT for formal approval.

In the Budget for 2021-22, Finance Minister Nirmala Sitharaman said the government will introduce alternative methods of debt resolution and a special framework for micro, small and medium enterprises.

What experts say

Experts say it will help expedite the resolution process for stressed assets as well as reduce the number of insolvency-related cases before the National Company Law Tribunal (NCLT).

“It’s time for the prepack. Prepack is the way to go if you want to preserve the asset (value). If you want to create a very effective remedy outside NCLT…,” Nishant Singh, Partner at Indus Law, said.

Pre-pack has to be at the forefront and also with some other mechanism on the forefront of the resolution of the insolvency and bankruptcy cases, said Ashok Haldia, Chairman, Governing Board Indian Institute of Insolvency Professional of ICAI.

“IBC has been the main law for the resolution of insolvency. Any forward-looking economy, any forward-looking industry or business scenario would see IBC is a matter of last resort, rather than the first legislator or framework to address there has to be an alternative mechanism rather than what we have been discussing all along be pre-pack as an alternative mechanism,” he said.

Lack of buyers

Nishant Singh of Indus Law said that the availability of resolution buyers could be a challenge in today’s stressed market situation, emphasising that the government needs to further encourage foreign players in view of their participation.

“Right now they (foreign players) have limited access through ARC (Asset Reconstruction Company) or FPI (Foreign portfolio investment) to actually participate…We have a massive debt which is under default or going to be the default and foreign investors are not able to participate (much), we are blocking massive liquidity coming into the Indian market which can really help to resolve these assets,” Singh said.

NCLT Infrastructure

Another challenge for the resolution under the IBC framework could be the lack of infrastructure, Singh said. Already, India is witnessing a pile of litigation cases at its courts, he said, adding “The courts will need to figure out how they will increase the capacity in the stipulated amount of time.”

“There has to be a process to make sure when there is a flood of these cases then we should prioritise the admission process so that the corporate debtor who needs immediate protection, gets that protection and the process gets jump-started,” he said.



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