IL&FS group has approached the NCLAT to seek permission to sell its stake with a “haircut” and without shareholders’ approval in its companies, which are insolvent with unsustainable debts and placed under the Category II list of resolution framework. The government sought time to file a reply from the National Company Law Appellate Tribunal (NCLAT) in the last hearing earlier this week over IL&FS’ interim application to sell a stake in group entities falling under Category II, whose highest bid amount was lesser than their debts.
In this process, “lenders, as well as shareholders, would anyway have to take a haircut for their respective debt/ and equities,” IL&FS said, adding that it would also ensure the revival of such entity, balancing the interests of stakeholders.
The resolution of such companies is in line with the process followed under the Insolvency & Bankruptcy Code, where the requirement of seeking consent from shareholders is dispensed with, IL&FS has submitted.
This will “resolve the category II companies (where IL&FS shareholding is less than 100 per cent) by writing down 100 per cent of their shareholding in exchange for bid proceeds to be utilised to discharge 100 per cent of the debt liability of the said entity”.
This will help and result in the extinguishment of debt liabilities of Category II listed companies. However, it is facing objections from other stakeholders of such companies, thwarting a successful resolution, IL&FS submitted in its plea filed before the NCLAT.
It has requested the NCLAT for “permitting writing down of the entire share capital of such Category II Companies upon payment of the bid value/proceeds without the requirement of obtaining any further approvals from the shareholders of such Category II Companies, resulting in the final resolution of the said entities”.
In companies like IL&FS Engineering and Construction Company Ltd (IECCL) and Hill County Pvt Ltd (HCPL), IL&FS said it is facing various objections from stakeholders, particularly from existing lenders and non-IL&FS group shareholders.
They are “either blocking such resolution by exercising their right to vote in the Committee of Creditor of the relevant company or filing an application before the NCLT”, thwarting a successful resolution of Category II companies.
The NCLAT had earlier issued notice to the Centre over IL&FS’ plea. However, during the latest hearing, counsel representing the government sought two weeks time to reply.
“This application has been filed by IL&FS seeking writing down of capital for resolution of category II companies. Notice was issued to Union of India,” the NCLAT order noted.
Besides, IL&FS also sought NCLAT’s permission to upload this application on the website to give an opportunity to any aggrieved shareholder to file a response to its plea, which was granted.
A two-member NCLAT bench has directed to list the matter on May 14, along with other applications filed by IL&FS.
According to IL&FS, “By virtue of this mode of resolution, IL&FS group itself is not deriving any benefit from the sale of equity. Rather, in fact, the bids proceed will be for the benefit of the lenders and in turn, the company…”
“Writing down shareholding will be commercially feasible and viable as the new bidder will be able to exercise complete control over the entity, without any interference from the previous management.”
This will enable a final resolution for the entity, “keeping in mind complexities of the IL&FS group, the need to balance the interest of all stakeholders, value maximisation of assets and larger public interest involved”.
IL&FS, which had a debt burden of Rs 94,000 crore at the time of crisis, is currently going through asset monetisation, under a resolution framework approved by the NCLAT, which also has a mechanism for the distribution of the sale proceeds.
The resolution framework has divided the sales companies into two categories.
Those companies in which bidders are willing to take financial and operational liabilities have been placed in Category I.
However, the companies where the financial bid amount offered is lower than their liability have been put under Category II companies.
For Category II companies, “the financial bid value received in respect of that sale company would be distributed to the creditors of that Sale Company for their admitted claims existing as of the Cut-Off Date,” IL&FS said, adding that it will result in the extinguishment of 100 per cent debt liabilities of the sale company.
Source: Economic Times