BS: Govt likely to oppose NCLAT’s Essar Steel order in Supreme Court

17 July 2019: The Ministry of Corporate Affairs (MCA) is likely to implead in the Supreme Court (SC) against the recent National Company Law Appellate Tribunal (NCLAT) judgment in the Essar Steel case treating secured lenders and operational creditors on a par, said a senior government official.

The order, the government said, is not in line with the Insolvency and Bankruptcy Code (IBC). “We will clarify the intent of the law in the apex court. The latest order is deviating from the Code,” said a senior official.

Lenders to Essar Steel have appealed against the NCLAT order in the SC, which will be heard next week. 

The Cabinet on Wednesday approved amendments to the IBC to give preference to secured lenders over operational creditors effective retrospectively.

The MCA wants to make it ‘abundantly clear’ in the law, the limit to the protection available to unsecured and operational creditors, a senior government official said, adding, “All options are open in front of the government.”

Operational creditors — supplier of goods and services such as vendors — are kept at a different footing from secured lenders who bring in finances into the company and have greater risk exposure.

Experts feel that the proposed retrospective amendment will have far-reaching impact. “It will directly affect even such plans which have long ago attained judicial finality, on merely there being an appeal pending against such finality. This may result in opening the floodgates to fresh challenges and would be interesting to see how the courts react to the same,” said Diwakar Maheshwari, dispute resolution partner, Khaitan & Co.

According to people in the know, operational creditors in nearly 200 cases have approached the NCLAT to seek a stay on the resolution plan in the hope that they would get a better deal after the Essar Steel case.

In the case of Bhushan Power & Steel, some of the operational creditors, too, had moved against the resolution plan filed by JSW Steel in the National Company Law Tribunal in March this year. JSW had offered to pay operational creditors a sum of ~350 crore against their admitted claims of ~733 crore.

The latest proposed amendment, however, could put a lid on these cases. “The proposed clarification that how much dissenting financial creditors and operational creditors will get after comparing under the resolution plan and in liquidation will definitely reduce the litigation which were initiated because of issues in respect of distribution of value between the stakeholders,” said Ashish Pyasi, principal associate, Dhir & Dhir Associates.

The Business Standard reported

MC: Race for Jet Airways: TPG Capital-led consortium, Apollo Global Management in fray

17 July 2019: A TPG Capital-led consortium is evaluating a potential bid for Jet Airways under the IBC (Insolvency and Bankruptcy Code), multiple sources with knowledge of the matter told Moneycontrol.

US private equity firm Apollo Global Management, which specialises in distressed firms, is also keen to strike an alliance with other suitors to bid for the debt-ridden airline. The firm, which has $280 bn of assets under management, has reached out to the Jet employees consortium in this regard, sources added.

Another source told Moneycontrol that a lot hinges on the lenders making  JPPL a party to the bidding process.

“TPG Capital is interested in Jet Privilege Private Limited (JPPL), which has better financials compared to Jet Airways, has seen a spike in membership and has shown profits in the past. But the only hurdle is JPPL is an independent entity is not a party to the current insolvency proceedings. The SBI-led lenders’ consortium needs to take a crucial call on whether JPPL can be made a party to the bidding process,” said a second source.

Jet Privilege Private Limited ( JPPL) is the frequent flyer loyalty programme of Jet. It was incorporated in 2012 as a wholly-owned unit of Jet Airways but was separated as an independent entity in 2014 after Etihad Airways purchased a 50.1% stake for $150 million. The remaining stake is held by Jet Airways. On Point Loyalty, a global management consultancy focused on airline loyalty programmes, had valued Jet Privilege at $1.131 billion (about Rs 7,300 crore) last year, based on the average rupee exchange rate in November.

“Apollo Global Management met the Jet Airways employees consortium recently. They are value investors and see a good opportunity in Jet Airways,” said a third source.

The lenders of Jet concluded their first CoC ( Committee of Creditors ) on July 16th, 2019 and are expected to invite EOIs ( expressions of interest ) by the end of the week The deadline for submission of EOI’s by potential suitors is likely to end in the first week of August. Ashish Chhawchharia of Grant Thornton was picked earlier by the SBI-led consortium as the resolution professional for Jet Airways.

Moneycontrol was the first to report on June 29 that a Hinduja Group-Etihad Airways consortium gearing up for an IBC bid for Jet Airways and the Tata Group and Qatar Airways in an exploratory mode for the same. Later, Tata SIA Airlines chairman Bhaskar Bhatt was quoted as follows: “With demand evidently remaining unfulfilled, we like other airlines have sought to get more aircraft into our fleet, including those grounded at present. Acquiring (Jet’s) Boeing fleet makes our otherwise A320 Airbus fleet asymmetric but it will at least service the gap even if temporarily,” indicating that the conglomerate’s interest may be limited to only some of the airlines’ assets.

Moneycontrol had also reported earlier on June 28 that the employee consortium had joined hands with London-based AdiAgro Aviation to bid for 75 percent in the airline through the IBC process. AdiGro Aviation Founder Sanjay Viswanathan said the consortium will bid for 75 percent stake, of which the London-based firm will take 49 percent, and the rest will be with the employees’ consortium. There is a 49 percent cap on FDI in the aviation sector.

After failed negotiations earlier with multiple suitors, the SBI-led consortium decided to take Jet Airways to the bankruptcy court on June 17 and on June 20, the National Company Law Tribunal (NCLT) admitted the insolvency petition. The tribunal also directed the interim resolution professional to submit fortnightly status reports on the account and try and complete the resolution process in three months citing “national importance”.  Apart from the debts owed to banks, Jet also owes vendors, lessors and salaries to its employees. In total, its financial obligations amount to Rs 25,000 crore.

In response to mailed queries from Moneycontrol,  TPG Capital declined to comment. A spokesperson for AION Capital, a joint venture of Apollo Global Management & ICICI Ventures also declined to comment.

As reported on Moneycontrol

TOI: Jaypee insolvency: NCLAT asks IDBI Bank to furnish conditions for fresh bidding

17 July 2019: The National Company Law Appellate Tribunal (NCLAT) on Wednesday directed IDBI Bank, the lead lender of debt-ridden Jaypee Infratech, to file an affidavit listing out new terms and conditions if a fresh round of bidding is conducted. A two-member bench headed by chairman Justice S J Mukhopadhaya has asked IDBI Bank to file an affidavit by Friday in this regard. The appellate tribunal has listed the matter for next hearing on Monday.

“Counsel appearing for lenders is allowed to file new terms and conditions in case fresh bidding takes place,” the bench said. In the second round of bidding, the committee of creditors (CoC) had first rejected the resolution plan of Suraksha Realty and then voted against state-owned NBCC’s offer. In the voting that took place on NBCC’s bid, 34.75 per cent of home buyers voted in favour, 1.44 per cent voted against, whereas 23.8 per cent did not vote. All the 13 banks, which constitute 40.75 per cent of CoC, voted against the bid by the state-run firm to acquire Jaypee Infratech. Home buyers have nearly 60 per cent voting rights in the CoC. In its hearing on Wednesday, the appellate tribunal has suggested some guidelines for new terms and conditions. “All allottees would be given flats according to their builder buyer agreement. If allottee not present then CoC has to decide how it has to be adjusted,” the bench said. “Land attached to the building and with common area amenities would remain with the allottees,” it added. Meanwhile, NCLAT also orally suggested to the counsel representing the Adani Group to improve its bid. Adani has made an unsolicited offer to acquire the debt-laden realty firm.

Jaypee Infratech went into insolvency in August 2017 after the National Company Law Tribunal (NCLT) admitted an application filed by an IDBI Bank-led consortium. In the first round of insolvency proceedings conducted last year, the Rs 7,350-crore bid of Lakshadweep, part of Suraksha Group, was rejected by lenders. Later in October 2018, the IRP started the second round of bidding process.

The Times of India reported

ET: Edelweiss shares crack 12% on stake sale buzz

17 July 2019: Shares of Edelweiss Financial Services cracked as much as 12 per cent in Wednesday’s session after reports that the company is looking to sell 20 per cent of its wealth business.

ET reported that US-based Kora Management is in advanced talks to buy 20 per cent in Edelweiss Wealth Management for Rs 2,000 crore, valuing the company at Rs 10,000 crore.

Edelweiss Wealth Management provides advisory distribution, broking and asset services, ESOP & margin funding.

It plans to focus on scaling its wealth management services in 2020, especially for the affluent business, as in the credit business it is looking to conserve liquidity and maintain asset quality over book growth.

It advises assets of over Rs 1 lakh crore and has a client base of over 4.8 lakh.

Edelweiss group, with businesses from wholesale financing to debt restructuring to asset management, has debt obligations, including principal and interest of Rs 6,500 crore from May 29, 2019, till September 30, 2019, against which the total expected inflows, including asset EMIs and repayments, are Rs 3,600 crore.

Also, it has a liquidity cushion of Rs 5,300 crore, including undrawn bank lines of Rs 1,300 crore.

The scrip closed 7.21 per cent down at Rs 161.55 on BSE.

The Economic Times reported

LM: Cabinet clears amendments to IBC, bankruptcy resolution gets maximum 330 days

17 July 2019: The government on Wednesday cleared amendments to the Insolvency and Bankruptcy Code (IBC) to enforce strict timelines for the rescue of companies and maximize the value of the insolvent company as a going concern.

The Cabinet approved seven amendments to the Code, which will now be taken to Parliament. An official statement said the amendments aim to fill the critical gaps in the corporate rescue framework specified in the Code.

The amendments set 330 days as the maximum time allowed for bankruptcy resolution, including for litigation and other judicial process. At present, the Code allows a maximum of 270 days for clearing a resolution plan, but courts have taken the lenient approach of excluding the time spent on legal challenges by various parties from the time frame. Promoters aggressively defending their cases and resisting their loss of control of their companies have, however, resulted in delays in many cases.

The amendments also seek to make explicit the rights of financial creditors who have not voted in favour of a rescue plan, as well as that of operational creditors. The proposal is to specify that they will get paid as per the hierarchy specified in the Code. The Code gives the highest priority to those who have brought interim finance to meet the costs of resolution or liquidation, followed by dues of workers for the past two years and dues of secured creditors in equal priority. Employees other than workmen and unsecured creditors and operational creditors are further down the line in the priority of receiving resolution or liquidation proceeds.

Another key amendment is to specify that the bankruptcy resolution or liquidation arrived at under the Code is binding on central, state and local governments, to whom the bankrupt firm may owe dues.

The LiveMint reported

ET: JSW Steel seeks immunity from litigation against Bhushan Power

17 July 2019: JSW Steel has sought immunity from future litigations against Bhushan Power & Steel for any illegal activity under the previous management amid reports of alleged bank fraud by former promoters of the troubled company undergoing debt resolution process.

JSW Steel, whose resolution plan under the Insolvency and Bankruptcy Code has been approved by lenders of Bhushan Power & Steel (BPSL), has approached the National Company Law Tribunal for relief in the wake of a series of fraud cases reported by banks including Punjab National Bank and Allahabad Bank against BPSL.

“We have represented to NCLT after PNB and other cases,” a top JSW official told ET on Tuesday. “We have sought relief so that we are not impacted by any litigation. We are waiting for the court order.”

JSW Steel has also asked for a copy of the forensic audit report on BPSL following these cases. PNB had recently reported a Rs 3,800-crore fraud by BPSL by way of misappropriating bank funds and manipulating its books. Allahabad Bank last week reported a Rs 1,774-crore fraud.

The JSW official, speaking on condition of anonymity, however, refuted speculation that the company would cut back its Rs 19,300-crore bid for BPSL due to the fraud cases. “We are not looking at reducing our bid, nor are we exploring the option to withdraw it,” the person said. “We have been pursuing BPSL under the IBC right form the time the resolution process was initiated and we continue to be interested in acquiring the company.”

BPSL was the sixth highest debtor in the Reserve Bank of India’s first list of twelve large defaulters. JSW Steel outbid Tata Steel in the race for the asset which was admitted to NCLT in June 2017. Sanjeev Gupta’s Liberty House, too, was in the race.

BPSL owes more than Rs 47,100 crore to a consortium of 34 lenders led by State Bank of India. While opinion is divided over whether NCLT can provide relief as sought by JSW Steel, the official said the company’s appeal draws strength from Section 238 of the Insolvency and Bankruptcy Code that says IBC overrides all other laws.

According to Ashish K Singh, founder of law firm Capstone Legal, the anxiety of JSW comes from the fact that assets of BPSL may be considered “proceeds of a crime” under the Prevention of Money Laundering Act and other enactments.

The Economic Times reported

LM: Creditors’ panel to vote on $10 mn interim fund for Jet tomorrow

17 July 2019: The committee of creditors (CoC) of Jet Airways will vote on Thursday on whether to pump in $10 million into the airline as interim funding, said a person aware of the development.

This, along with other resolutions, was discussed at the first CoC meeting of Jet Airways on Tuesday. The other resolutions included calling for bids and admission of claims by creditors.

“We will seek proposals from investors in the coming weeks and investors who had shown interest in the airline before it was referred to NCLT will have to send a fresh proposal,” the person mentioned above said on condition of anonymity.

The advertisements for these will be published soon, he said.

The Mumbai bench of the National Company Law Tribunal (NCLT) on 20 June admitted Jet Airways under the Insolvency and Bankruptcy Code (IBC) after lenders referred it to the bankruptcy tribunal.

Jet Airways has not flown since 18 April because of funding woes.

A consortium of 26 bankers led by the State Bank of India had approached the tribunal to recover dues of more than ₹8,500 crore. The lenders have been trying to sell the beleaguered airline as a going concern for the past five months.

Apart from banks, the airline also owes more than ₹10,000 crore to hundreds of vendors, primarily aircraft lessors, and over ₹3,000 crore to its employees who have not been paid since March.

The airline has had negative net worth for long and has run a loss of more than ₹13,000 crore in the past few years. Its total liabilities amount to over ₹15,000 crore.

The NCLT will hear the insolvency case and the progress report by the insolvency resolution professional (IRP) on 23 July.

The tribunal has ordered the IRP to complete the IBC process in three months, though the law allows six months, saying “the matter is of national importance”.

The LiveMint reported