Essar Steel lenders seek larger share of resolution amount
12 July 2019
Lenders to bankrupt Essar Steel are disappointed with the ruling of the National Company Law Appellate Tribunal (NCLAT) that limits their share in the resolution amount to 60.7 per cent of their Rs49,473-crore claims and awarding the remaining to operational creditors
The consortium of banks are miffed at the tribunal’s treatment of operational creditors on par with financial creditors and are mulling various options such as moving the Supreme Court and seeking an amendment to the Insolvency and Bankruptcy Code (IBC).
Reports said bankers are also mulling options to push for amendments to the IBC to ensure that secured creditors get priority in the resolution process.
Early this month, the NCLAT revised the approved claims of operational creditors to Rs19,700 crore, up from Rs5,000 crore, stating that there was a large disparity in the claims and the data provided to the NCLAT. The total claims of financial, operational creditors now stand at Rs69,192 crore.
This means that banks will share around Rs30,000 crore from the Rs42,000 resolution amount that ArcelorMittal offers, with the remaining going to operational creditors.
The NCLAT also ruled that the committee of creditors (CoC) does not have the authority to decide on the distribution of the bid amount as the responsibility lies with the insolvency resolution professional.
Bankers are disappointed that resolution is not taking place on time in most cases, and that banks are subsequently forced to take huge haircuts.
ArcelorMittal had told NCLAT that it would pay Rs42,000 crore, including a minimum of guarantee of Rs2,500 crore as working capital, for acquiring debt-laden Essar Steel under the insolvency process.
In April, the Supreme Court halted distribution of funds among operational and financial creditors under the resolution plan. This was after the lenders to Essar Steel challenged a direction of the NCLAT asking the resolution professional (RP) to call a fresh meeting of the committee to consider the redistribution of funds among the creditors.
ArcelorMittal’s Rs42,000 crore resolution plan for Essar Steel was approved by the NCLT on 8 March. In its judgment, the NCLT had observed that though it did not want to change the resolution plan approved by the CoC, it would suggest the lender to reconsider distribution of dues and give 15 per cent of the total offer to operational creditors.
Lead creditor SBI’s chairman Rajnish Kumar on Wednesday evening also said the lenders will appeal to the Supreme Court against the NCLAT order.
“Let us see what works. There have been amendments to the IBC in the past and, if required, there can be more. Let us be patient,” Kumar told reporters.
Placing operational creditors on par with secured financial creditors can be a disincentive, he noted. “We are a different class of creditor,” he said, adding that in liquidation, lenders are the top priority along with employees.
The ruling, he added, would make bankers think twice before using IBC provisions to resolve stressed assets in future.