MC: In a first, NCLT allows 13 Videocon group cos to be clubbed

8 August 2019: To speed up the resolution process and also to get better value, the National Company Law Tribunal in a first on August 8 allowed the resolution professional (RP) to consolidate 13 of the 15 Videocon Group companies into a single entity, citing similarity in their operations.

While the nascent domestic bankruptcy law is silent on consolidating different the books of insolvent companies, citing larger interest of lenders and other stakeholders, the Mumbai bench drew examples from British and American bankruptcy laws.

“We heard the arguments both for consolidation and against it. I think it is time to introduce consolidation of accounts with similar operations. As there are no domestic laws to draw from, I have taken some guidance from the British and American laws.

“Under certain circumstances they have allowed consolidation and under some they have even rejected it. So, of the 15 companies, 13 can be consolidated into a single account, having a direct link and interlink of accounts which will maximise their value,” tribunal judge MK Shrawat said.

The tribunal also appointed Mahendra Khandelwal as the RP of the consolidated unit.

The other two organizations–Trend Electronics and KAIL –will have separate resolution process, the bench said and explained that these two companies have separate sources of income and after segregation they can survive and get better value.

The resolution process of the consolidated Videocon Group companies and Trend Electronics and KAIL will begin from the day of this order.

Separate RPs will also be appointed for Trend Electronics and KAIL, the tribunal added.

In January, the lenders led by SBI had sought citing procedural consolidation of the 15 Videocon Group saying it will maximise the value of assets and all stakeholders will benefit from such a move, apart from speeding up the resolution process.

The flagship Videocon Industries’ debt stood at Rs 19,506 crore as of March 2018. The group is among the 40 largest defaulters identified by the Reserve Bank’s first list for insolvency in late 2016.

The company has its core businesses in consumer electronics and oil & gas exploration, while the subsidiaries are into manufacturing, sale and distribution of consumer goods. The lenders plan to first auction the electronics business estimated to be worth USD 2 billion.

Some of the units referred to the NCLT include Value Industries, Trend Electronics, KAIL, Millennium Appliances, Applicomp, Sky Appliances, Techno Electronics, Century Appliances, PE Electronics, Next Retail, Evans Fraser & Co and Videocon International Electronics. PTI SM BEN.

As reported on moneycontrol

LM: Govt names 4 domestic auditors to restate IL&FS books

8 August 2019: The corporate affairs ministry on Thursday proposed to NCLT four auditing firms to restate the accounts of the crippled Infrastructure Leasing & Financial Services (IL&FS) and some of its subsidiaries to verify fraudulent transactions.

The move comes even as the ministry awaits the NCLT view on banning Deloitte, Haskins & Sells and BSR Associates, which were the statutory auditors of these companies before going belly up. While Deloitte quit in FY18, BSR, which is an affiliate of KPMG, did so only in June 2019.

The ministry had moved the NCLT in June seeking a ban on them, which has been questioned by these auditors on the powers of NLCT order a ban after an SFIO probe had established corruption and fraud in these companies.

Though the names were disclosed publicly, ministry sources told PTI that the ministry Thursday proposed the Borkar & Mazumdar & Co and MM Chitale & Co for IL&FS and IFIN respectively; and GM Kapadia & Co and CNK & Associates for IL&FS Transportation Networks.

Incidently, all these new auditing firms are local companies based in Mumbai, while Deloitte is an American and BSR has foreign partner in KPMG.

Earlier this week, the ministry had moved the NCLT seeking to temporarily freeze their bank accounts along with those of 21 others who are impleaded in the main petition in the one of the largest fraud cases.

IL&FS Group owes more than ₹95,000 crore to lenders and filed for bankruptcy last October.

The LiveMint reported

BS: Will challenge IBC amendments: Essar Steel operational creditors tell SC

8 August 2019: The operational creditors of Essar Steel on Wednesday told the Supreme Court (SC) that they would challenge the latest amendments made to the Insolvency and Bankruptcy Code (IBC), which gave preference to financial creditors over operational creditors. The apex court has agreed to hear the operational creditors on the issue and given them a week to file amended applications challenging the changes brought to the IBC.

The case would be next heard on August 19, when the apex court is also likely to hear other challenges made to the IBC, such as the extension of the corporate insolvency resolution period to 330 days from 270 days and other changes which may apply retrospectively. During the hearing on Wednesday, the court observed that since the Committee of Creditors (CoC) comprised only of secured financial creditors, it was possible that they could be discriminated against.

“When you have a CoC only of financial creditors, and the operational creditor is only given a hearing…nothing beyond, then it is possible that operational creditor can be given nothing. There can be challenges to it,” a two judge Bench led by Justice Rohinton Fali Nariman said.

This observation prompted the operational creditors to submit that even the latest amendments to IBC added to their woes instead of solving it. The court further observed that if the law allowed banks to decide that while they would take haircuts, they could give nothing to the operational creditor, “it was bad law”.

“If this is not addressed even in the amendments, it is a major lacuna. The amendments, instead of addressing the issue, aggravate it,” the court said. The financial creditors tried to justify the latest amendments made to the IBC by claiming that the difference between them and the operational creditors was that they were secured lenders as opposed to the latter. The court, however, observed that as there was “no monopoly” of any operational creditor, it was possible that a new management could switch to another service provider instead of the old one.

Supreme Court’s Observations

  • Some new amendments to IBC will impact operational creditors
  • If problems not addressed, court will look into them
  • Questions possibility of OCs getting nothing in resolution plan
  • Will look into amendments made to IBC to see if they are ‘bad law’

The apex court on Wednesday also asked the lawyers for CoC as to why the operational creditors should also be disadvantaged to possibly receive nothing if the purpose of Corporate Insolvency Resolution Process (CIRP) was “to resuscitate” the company instead of liquidating it.

“In case of liquidation, everyone stands in line and gets what they get. When the plan is to resuscitate, why is it that the operational creditor is given nothing? Why had the NCLAT been driven to interpret it in that way?” the two judge Bench observed.

The questions to the CoC by the SC on Wednesday came after the operational creditors submitted that changes to IBC had been approved by the government and passed by both the Lok Sabha and Rajya Sabha, but was only pending presidential nod. The government had in July cleared about seven changes to the IBC in which it had clarified that the commercial consideration and decision taken by the Committee of Creditors (CoC) would be taken into account when it came to distribution of funds as proposed by a resolution applicant in the resolution plan.

Finance Minister Nirmala Sitharaman had on July 29 told the Rajya Sabha that the new changes to IBC had been brought to clarify the interpretation problems that had arisen due to the National Company Law Appellate Tribunal (NCLAT) ruling in Essar Steel insolvency case. The NCLAT interpretation, Sitharaman had then said “was trying to treat secured creditors, operational creditors at par”, which “defeated the purpose and also the spirit” of IBC.

The NCLAT had on July 4, while clearing the resolution plan submitted by ArcelorMittal for Essar Steel, ruled that both the financial and operational creditors would get nearly 60 per cent of their claims. The earlier arrangement where the CoC comprising of financial creditors had decided that they would get nearly 90 per cent of their admitted claims and the operational creditors would get only 10 per cent of their claims, had been struck down by the NCLAT. Essar Steel’s financial creditors should not have distributed the amount among themselves by keeping the “maximum amount in favour of one or other financial creditors and minimum or NIL in favour of some other financial creditors or the operational creditors,” the NCLAT then said.

Aggrieved by the NCLAT judgment, the CoC has approached the apex court with a plea that appellate authority’s decision to equate financial creditors with operational creditors and disregarding the security interests of the former would lead to “severe plunge in recovery rate of banks and financial institutions” during the CIRP, which could lead them to “grave financial distress,” the CoC has said in its plea.

The Essar Steel insolvency case, which has been going on for more than 700 days now, has seen various rounds of litigation. Currently, Lakshmi Mittal owned ArcelorMittal is the only bidder. Its Rs 42,000 crore resolution plan has been accepted and approved by the CoC, the National Company Law Tribunal, as well as the NCLAT.

The Business Standard reported