DHFL Insolvency: Conflict And Controversy Surround Rebids
DHFL logo seen through a tyre. (Source: BloombergQuint) 

DHFL Insolvency: Conflict And Controversy Surround Rebids

Creditors to Dewan Housing Finance Corporation Ltd will conclude voting on a proposal to seek fresh bids for insolvent housing financier on Wednesday.

If the proposal gets the support of at least 66% of creditors by value, fresh bids will be invited by December 13, three people with direct knowledge of the developments told BloombergQuint. This would be the fourth round of bids submitted by the four bidders that have shown interest. These bidders include Piramal Enterprises, Adani Group, SC Lowy and Oaktree Capital Management.

The last round of plans submitted by the bidders on November 17 is yet to be opened by the creditors. Depending on whether a fresh round of bids is permitted, bidders may choose to stay with their existing submission, submit a fresh proposal or exit by December 13.

Once the creditors have opened all valid plans, these would be assessed for compliance and viability. The committee of creditors would be assigning scores to the plans, depending on the way the payout is structured by the bidders. The plan with the highest score would then be finalised as the top bidder, after which the lenders might negotiate further, before voting on the final plan.

Emails sent to DHFL’s administrator and to State Bank of India on Friday evening went unanswered.

Discontent Among Bidders

While the final outcome is still some distance away, DHFL’s insolvency process has been marred by controversy. For one, the decision to vote on inviting a fourth round of bids led to discontent among bidders.

This round of bids is being prompted by a materially changed resolution plan submitted by Adani Properties Pvt Ltd and Nirjara Pedestal Private Ltd on November 17. The Adani Group has offered to purchase all loan assets of DHFL in its plan, as part of the plan for a total consideration of about Rs 31,250 crore, according to the people quoted above. The plan differs from the earlier offer by Adani Group to purchase only the wholesale portfolio of DHFL as part of its plan.

Soon after, the Piramal Group raised a formal protest, BloombergQuint reported on Nov.15. In a letter to the Reserve Bank of India-appointed administrator and financial creditors of DHFL, Piramal Group claimed that the decision by one of the bidders to alter its bid is in contravention with the process laid down by the committee of creditors.

According to the people quoted above, Hong Kong-based investor SC Lowy has also informed creditors that they reserve the right to back out of DHFL's resolution process altogether. SC Lowy had originally bid for DHFL's corporate loans.

SC Lowy did not respond to queries sent by BloombergQuint on Friday.

Oaktree Capital Management, which is the only other bidder to have bid for all of DHFL's assets, is currently mulling over whether it should participate in the fresh bidding process or exit the process fully, a person directly familiar with the matter told BloombergQuint, on condition of anonymity.

Oaktree Capital Management declined to comment.

Adani Group Defends Its Stance

In response to the controversy surrounding its fresh bid, the Adani Group wrote to the creditors of DHFL and its administrator on November 19. In the letter, Adani Group’s legal advisor Juris Corp said that the new resolution plan is in compliance with regulations laid out in the resolution process, created by the creditors.

BloombergQuint has reviewed a copy of the letter.

Further in the letter, Juris Corp said that creditors have the freedom to consider and assess any resolution plan they deem fit. According to the letter, the other bidders participating in the process have waived their right to legally challenge any decision taken by the creditors with respect to the process followed to assess bids.

Any attempt by a resolution applicant to force the conduct of the administrator and/or the CoC in a particular manner against the value maximisation is not only contrary to what has been stipulated in the RFRP (request for resolution plan), it is also violative of the IB (Insolvency & Bankruptcy) Code.
Juris Corp. Letter On Behalf Of Adani Group

Juris Corp declined to respond to a query mailed on Saturday. Adani Group did not respond to queries sent on Friday.

Conflict Of Interest?

Along the way other concerns have cropped up as well.

An authorised representative of DHFL’s fixed depositors, raised a question about a possible conflict of interest on the part of the legal adviser to the creditors. Cyril Amarchand Mangaldas, who is the legal adviser to the creditors, has had a long standing professional relationship with the Adani Group.

This question was recorded in the minutes of the CoC’s meeting dated November 23. BloombergQuint has seen a snapshot of the minutes. Two people familiar with the matter independently confirmed the question was raised.

The law firm was first hired by DHFL’s lenders as a legal adviser in July 2019, before the insolvency proceedings began.

While responding to the query at the meeting, Cyril Amarchand Mangaldas said that there was no conflict of interest in it representing the creditors, considering the list of bidders involved. Its response too is recorded in the minutes of the meeting.

As part of its suggestions to have better representation for all types of creditors, Cyril Amarchand Mangaldas recommended to creditors that they appoint another legal adviser as co-counsel, according to the minutes referenced above. The creditors have appointed J Sagar Associates, which will be sharing the advisory role with Cyril Amarchand Mangaldas, the minutes said. The full scope of the duties for both legal advisers is still being finalised.

According to a person with direct knowledge of the developments, both legal advisers to the creditors will be dealing with the bidders, as part of their duties.

J Sagar Associates did not respond to queries sent on Friday. A spokesperson for Cyril Amarchand Mangaldas said that the law firm does not comment on ongoing matters.

Legal Recourse

In its letter to the committee of creditors, Piramal Group had noted that fresh resolution plans may only be sought for by the creditors, if the existing submissions are not satisfactory. Since the lenders have not yet opened the resolution plans received on November 17, it cannot be determined whether these plans are satisfactory or not.

This contention, however, may not give bidders robust grounds for a legal challenge.

In May 2018, during the resolution of Binani Cement, the creditors were faced with a similar problem. After a consortium between India Resurgence Fund and Dalmia Bharat Ltd submitted a higher bid for Binani Cement during the resolution process, competing bidder Ultratech Cement offered an even higher unsolicited bid. The Kolkata bench of the National Company Law Tribunal, at the time, asked lenders to consider the unsolicited bid, in the interest of maximising returns.

Dalmia Bharat fought the case till the Supreme Court, since the bidder believed that it was essential to respect the deadline set by the creditors and that the unsolicited bid was not valid. Eventually, Ultratech Cement prevailed and took over Binani Cement’s assets in November 2018. Moreover, the lenders ended up recovering more than what they were owed in the case, since Binani Cement was valued highly during the process.

“The commercial wisdom of the committee of creditors has been recognised by the Supreme Court in its judgments and is followed when dealing with bids. If the creditors have not given favourable treatment to one bidder and have allowed everyone to change their offers, then they can conduct as many bidding rounds as time permits,” said Ajay Shaw, partner at law firm DSK Legal.

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