India’s dedicated insolvency court on Tuesday rejected the offer by Essar Steel promoters to pay off the company’s outstanding debt and extricate the alloy-maker from bankruptcy administration. It said that there was no irregularity in the lenders’ decision to accept the rival bid by ArcelorMittal.
Essar’s promoters, the Ruias, had offered to pay Rs 54,389 crore to settle the matter outside the ambit of the Insolvency and Bankruptcy Code (IBC) as it wanted to “redeem the debt”.
“You cannot come in at the last minute with this offer. The right to debt redemption is not maintainable,” the National Company Law Tribunal (NCLT), Ahmedabad bench, said in the order. “…There is no illegality in the decision taken by the Committee of Creditors (CoC).”
The CoC, led by State Bank of India, had in October last year approved the Arcelor-Mittal plan that envisaged paying Rs 42,000 crore to the lenders.
ARCELORMITTAL WELCOMES VERDICT
ArcelorMittal had also offered to invest another Rs 8,000 crore into the alloy maker.
The Ruias, in a last-ditch attempt to save the company, offered a Rs 54,389-crore plan that would have repaid all creditors — secured and unsecured financial creditors and vendors.
The case has been running for about 550 days, while the law requires a conclusion in 270 days.
“We welcome today’s ruling by the NCLT which protects the integrity of the IBC and ensures its legitimacy as a rules-based law,” ArcelorMittal said in a statement. “This is a positive development for both Essar Steel India and the country more broadly. We hope now for a swift resolution to this case.”
Meanwhile, Essar Steel showed no signs of changing stance, saying its offer trumped that of its rival.
NEXT COURSE OF ACTION
“We are awaiting a copy of the full NCLT order, and will take a call on the next steps after we have thoroughly gone through the contents,” said a company spokesperson. “It (the Essar offer) seeks to repay all classes of creditors and fulfils the IBC’s overriding objective of value maximisation that has been established time and again by courts at all levels. We continue to believe that our offer… is the most compelling proposal available to Essar Steel creditors.”
Essar Steel owes about Rs 49,000 crore to lenders and was admitted by the insolvency court in Ahmedabad in August 2017 upon the referral of both State Bank of India and Standard Chartered Bank. ArcelorMittal has made a total offer of Rs 50,000 crore for the asset, out of which they will be paying Rs 42,000 crore to lenders; making this a 86% recovery of debt on the steel asset.
“This NCLT judgement should be seen in conjunction with the Supreme Court order a few months ago that had asked both Essarbacked Numetal and ArcelorMittal to pay up their dues to qualify to bid for Essar Steel,” said a banker closely involved with the CoC. “ArcelorMittal has subsequently paid its dues but Essar did not. This NCLT judgement just underlines the fact that Essar now cannot qualify to bid for this company. As far as the CoC is concerned, we have already made our decision.”
Commenting on the development, Alok Dhir of Dhir & Dhir Associates, a law firm, said: “It is a significant step forward for ArcelorMittal and a setback for Essar at this stage… Essar Steel is likely to challenge this at the NCLAT.”
NCLT will also be hearing operational creditors who have challenged the Arcelor plan. These creditors have been saying that they stand to recover their dues under the Essar plan.
The NCLAT, a court of appeals, had directed the NCLT Ahmedabad to decide on the maintainability of the Essar offer by January 31.
Source: Economic Times