Lenders to seek guidance on Mittal offer
Action initiated against promoters under insolvency law for siphoning off funds
The resolution of ~75 billion debt of Tecpro Systems, a material handling company, will test the insolvency process if lenders have to take a huge haircut.
On May 3, the resolution professional initiated action under sections 66 and 67 of the Insolvency and Bankruptcy Code (IBC) at the National Company Law Tribunal (NCLT) against Tecpro’s erstwhile promoters for allegedly siphoning off funds from the company. Under these sections, a promoter or a director can be held liable if any of the borrower’s business was carried on with intent to defraud creditors.
A forensic audit on Tecpro Systems by management consultancy firm EY, which was attached with the RP’s application to the NCLT, found evidence of siphoning off of funds.
The EY report said the company made payments for raw materials that were never delivered. These suppliers were related or controlled by promoters or their associates, it added.
Tecpro, which came out with its IPO at ~355 a share in 2010, was trading on the bourses till 2016.
The company started defaulting from 2014 on its loans taken from public sector banks, which, in turn, sold their loans to Edelweiss Asset Reconstruction Company at a steep discount. Edelweiss ARC moved the NCLT in August last year against the company to recover the loans and also initiated a forensic audit by EY.
An Edelweiss spokesperson declined to comment, while e-mails sent to Tecpro remained unanswered.
Early this month, the committee of creditors, comprising Edelweiss ARC (85 per cent of votes), Standard Chartered Bank and Vijaya Bank, approved a plan to sell the company.
The highest bidder, Kridhan Infrastructure, promised an upfront payment of ~500 million and agreed to repay the company’s debt of ~4 billion to be paid in three years. Kridhan Infrastructure’s plan wanted immunity to the company, directors and employees from any cheque bouncing cases. The CoC agreed to give immunity only to the company but not to others. If Kridhan's offer is accepted, lenders are looking at the prospects of more than 95 per cent haircut on their exposure.
Lenders are a worried lot on the extent of haircut. “With the forensic audit showing siphoning off of funds, then under the IBC code, the RP has taken action. But it would take couple of Supreme Court judgments to put the IBC house in order,” said the head of an asset reconstruction company.
This is the not the first case where the Indian lenders would lose money.
According to estimates made by analysts, lenders will have to take between 50 per cent and 75 per cent haircut in their exposure to top 40 companies identified by the Reserve Bank of India (RBI) for referral to the NCLT.