The resolution process at Videocon Industries Ltd. hit unexpected turbulence after an appeals tribunal stayed implementation of billionaire Anil Agarwal-owned Volcan Group’s resolution plan. Bankers are now keen on further negotiating the repayment schedule proposed by the buyer.
The intervention by the National Company Law Appellate Tribunal may spur the committee of creditors to revise their view on Volcan’s arm Twin Star Technologies Ltd.'s bid for Videocon, according to two bankers speaking on the condition of anonymity as they aren’t authorised to disclose details. This could delay the three-year resolution process further.
The lenders will likely ask Twin Star Technologies to review the upfront cash amount promised to financial creditors, according to the first banker cited earlier.
While they are yet to discuss the NCLAT's stay on the resolution process, the lenders it seems are coming to agreement with the issues raised by dissenting creditors.
Earlier this week, on objections raised by Bank of Maharashtra and IFCI Ltd., the appellate tribunal stayed the June 8 order of the Mumbai bench of the National Company Law Tribunal approving the offer. Twin Star had agreed to pay Rs 2,900 crore against more than Rs 61,000 crore in dues owed to Videocon's financial creditors, a recovery rate of less than 5%.
"The main objective and the spirit of the code is to maximise the assets of the corporate debtor; however, the code has been used as a tool to do the exact contrary and devaluate the corporate debtor assets,” according to Bank of Maharashtra's petition in the NCLAT. “Many operational creditors, shareholders and MSMEs have lost their entire claim.”
The offer included an upfront cash payment of Rs 262 crore—Rs 62 crore on the first day and the rest Rs 200 crore over 25 months. The remaining bid amount would be paid over six years through non-convertible debentures at 6.65% interest charged annually.
The financial creditors will likely ask for higher cash upfront without the 25-month repayment period, the two bankers quoted earlier said. This may reopen negotiations between the committee of creditors and the bidder, which have already lasted for nearly a year before plan was approved, they said.
State Bank of India, the largest lender to Videocon; and Abhijit Guhathakurta, the resolution professional, did not respond to queries emailed on Thursday.
The Dissenting View
At the NCLAT, Bank of Maharashtra and IFCI raised concerns regarding the valuation process followed to arrive at the liquidation , the amount allocated to dissenting financial creditors and the manner in which the resolution plan was passed.
Bank of Maharashtra’s claims worth Rs 1,214 crore and IFCI’s dues of Rs 620 crore against Videocon Industries were admitted by the resolution professional. Together, the two represent 3% of the vote share among the financial creditors. Small Industries Development Bank of India and ABG Shipyard Ltd., who also voted against the plan, have a marginal vote share.
According to an assessment by process adviser SBI Capital Markets Ltd. shared with financial creditors in November 2020, Bank of Maharashtra would have received Rs 42 crore and IFCI Rs 70 crore as dissenting creditors. That, Bank of Maharashtra said, prompted it to vote against the resolution plan put to vote in the same month.
To be sure, the resolution plan filed with the NCLT allocated Rs 105.23 crore to dissenting creditors.
Bank of Maharashtra claims when it raised concerns about the difference in the amount promised before voting and what was provided for in the plan, neither the resolution professional, nor the CoC legal counsel nor SBI Capital responded.
In April, Bank of Maharashtra and IFCI raised these concerns with the NCLT but their petitions were disposed of in June when the tribunal approved the plan.
"A commercial decision could be taken only on the basis of correct facts and figures,” Bank of Maharashtra said in its appeal before the NCLAT. “If the facts and figures are incorrect and wrongly represented by the RP (resolution professional), the same is bound to result in incorrect decision making and inappropriate application of commercial wisdom."
The dissenting creditors said the NCLT also asked the CoC to modify elements of the offer. According to the resolution plan, the dissenting creditors were to get a portion of payout in cash and the rest in the form of NCDs. The NCLT, while approving Twin Star’s bid, asked the CoC to ensure that dissenting creditors are only paid upfront cash.
This amounts to modification of the resolution plan, without the CoC having voted on it, the Bank of Maharashtra claimed in its appeal.
The creditors to Videocon Industries had also appointed two independent firms, Rajesh Narula & Co. and RBSA Advisors, to arrive at the liquidation for the insolvent company. In their petition, the dissenting creditors flagged that the liquidation and the bid amount quoted by Twin Star are very close.
Also Read: Videocon Insolvency: Surprising That Vedanta Group's Bid Is So Close To Liquidation Value, NCLT Says
What Next
The NCLAT’s stay will continue till it hears the matter next on Sept. 8.
According to the second banker quoted earlier, while it is unlikely that the appellate tribunal will take up any review of the liquidation valuation, there could be questions regarding the procedures followed by the CoC and their advisers in approving the plan.
If the NCLAT orders to reopen the resolution process, the CoC will be expected to meet again and review the procedures.
The modification of the plan by the NCLT may also require a vote among creditors and a fresh approval by the tribunal, the two bankers quoted earlier said. That may further delay the resolution, the bankers said.
In previous cases, the Supreme Court has held that while the dissenting creditors must be paid in cash, only the CoC can make a change to the resolution plan, not the tribunals.
The NCLAT's concern in the Videocon resolution plan is driven by the market perception that the lenders are taking a large haircut, according to Rajat Sethi, partner, S&R Associates.
"Another issue the NCLAT seems to have raised concern over is that the given by the bidder is close to the liquidation found through an independent process,” Sethi said. “But the recovery is a matter which the financial creditors decide on. There is little a tribunal can intervene over, unless a breach of confidentiality is established."
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