NCLT’s Maiden Or­ders: 2 Firms Asked to Wind Up

The Economic Times - - Finance & Commodities - Times­ The or­der on these small com­pa­nies has set a prece­dent that the new law is liv­ing up to its prom­ise of de­liv­er­ing jus­tice in a time-bound man­ner The Hy­der­abad bench of the tri­bunal orally pro­nounced a liq­ui­da­tion or­der for VNR while a judge


Mum­bai: The Na­tional Com­pany Law Tri­bunal has cre­ated his­tory un­der the new In­sol­vency and Bank­ruptcy Code - it last week or­dered­windin­gupof twocom­pa­nies — VNR In­fra­struc­tures and Bhu­pen Elec­tronic — after the bor­row­ers and lenders failed to come up with a plan to re­vive op­er­a­tions. Th­esec­om­pa­nies,thoughs­mall,set a prece­dent that the new law is liv­ing up to its prom­ise of de­liv­er­ing jus­tice in a time-bound man­ner.

TheHy­der­abad­ben­chof thetri­bunalo­ral­lypro­nouncedaliq­ui­da­tion or­der for VNR while a judge­ment on liq­ui­da­tion of Bhu­pen Elec­tronic was passed by Mum­bai bench. ET con­sid­ers an­tecedents in both cases. Pro­moted by Andhra MLC Vakati Narayan Reddy, the com­pany ap­proached the NCLT in­Fe­bru­ary­forini­ti­at­ing­cor­po­rate in­sol­vency. Its pe­ti­tion showed net worth com­pletely eroded and a loss of ₹ 125 crore. The State Bank of In­dia and oth­ers had a joint ex­po­sure of ₹ 1,102 crore in the com­pany as loans and guar­an­tees. An in­de­pen­dent val­u­a­tion re­port val­ued VNR at ₹ 80 crore. The com­pany pro­posed a res­o­lu­tion plan invo l v i n g ₹ 850 crore, wherein 50% of the loan would be con­verted into eq­uity and the bal­ance into debt payable over 15 years. A se­cond res­o­lu­tion plan pro­posed cash pay­ment of ₹ 300 crore over a sin­gle year. Se­nior bank of­fi­cials said the lenders re­jected both plans on grounds that VNR did not have the nec­es­sary cash flow to sup­port pay­ments. “Also, when a com­pany has a loan of over ₹ 1,000 crore and is val­ued at ₹ 80 crore, why would it want to make a one- time cash set­tle­ment of ₹ 300 crore, a huge markup over the value of as­sets?” said a banker.

Aper­son­with­di­rec­t­knowl­ed­geof the de­vel­op­ment said, “Lenders con­veyed to the com­pany that they would ac­cept a one-time set­tle­ment of ₹ 300 crore pro­vided part of the cash was paid up front, which was not ac­cepted by the debtor.” VNR told NCLT that a techno eco­nomic vi­a­bil­ity study by It­cot Con­sul­tancy and Ser­vices showed tech­ni­cal and fea­si­ble­vi­a­bil­ity. Ase­nior­com­pany of­fi­cial said, “Cred­i­tors have looked at the pro­posal with prej­u­dice and thus the whole pur­pose of the Code is de­feated.” Bhu­pen’s com­mit­tee of cred­i­tors pro­posed liq­ui­da­tion on grounds that it had not been op­er­a­tional for al­most a decade and did not have any­one on its pay­roll. VIP Fin­vest Con­sul­tancy ini­ti­ated in­sol­vency pro­ceed­ings against Bhu­pen Elec­tronic. The com­mit­tee of cred­i­tors did not come up with any res­o­lu­tion plan nor re­ceive one from any of the par­ties in­volved.

Since land and its build­ing were the sole fixed as­sets of the com­pany, lenders sug­gested liq­ui­da­tion ratherthanan­other90-dayex­ten­sion­for work­ing out a res­o­lu­tion plan.

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