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