Why Two Amtek Auto Board Members Quit And Returned In 24 Hours
Amtek Auto Ltd. said on Friday that two of its board members had resigned. Within 24 hours, the auto parts maker brought them back as presidents.
The company is among the dozen stressed accounts identified for insolvency proceedings by the Reserve Bank of India. Once the process begins and an insolvency professional is named to run day-to-day operations, the components supplier’s board will be suspended and it won’t have the powers to make new appointments.
By redesignating Vice-Chairman and Managing Director John Ernest Flintham and Independent Director Sanjiv Bhasin as presidents, Amtek has ensured that they stay involved with the company’s operations. It also named Kunal Sabharwal as the group chief financial officer.
“Companies and promoters will test regulations (of the insolvency code) to find out what is acceptable and what they can get away with,” said Amit Tandon, co-founder of proxy firm Institutional Investors Advisory Services.
Pressure from “promoters with connections in corridors of power” was a possible challenge to insolvency professionals, besides a push from creditors to increase the liability, Jefferies said in a research note on Monday. India ranks poorly at 136 when it comes to insolvency resolution with the process taking 4.3 years on an average, it said citing the World Bank data.
Amtek Auto defaulted on bond payments in 2015. The company owes banks nearly Rs 8,000 crore and has another Rs 2,000 crore as overseas borrowings, according to its filings at the end of March last year. Lenders have been pushing the company to sell some of its overseas assets, but without much luck.
The company had agreed to sell a significant stake to financial investors, but that hasn't moved as planned. Its lenders IDBI Bank Ltd. and Corporation Bank Ltd. did not respond to e-mailed queries from BloombergQuint. Group Chairman Arvind Dham also didn't respond to queries sent via email.
The Reserve Bank of India identified the company among the 12 accounts that contribute a quarter of India’s bad loans as promoters and lenders had failed to find a resolution.
Insolvency Professional In Command
The insolvency process prevents promoters from placing their key managerial personnel at various positions, said MS Sahoo, chairman of Insolvency and Bankruptcy Board of India. “The management vests with the insolvency professional, the powers of the board are exercised by him, so there is no promoter who can give any direction to the company once the board is suspended.”
The professional has powers to engage other professionals and the existing management will report to him, Sahoo said.
Starting with a completely new set of executives may not be possible given the complexity of the resolution process. Existing executives aware of a company’s workings may be able to help.
“If you throw out every single managerial person who is of any relevance, how do you expect the insolvency professional to continue the business and restructure it,” said Anand Desai, partner at law firm DSK Legal. They should continue with the current managerial professionals to find a resolution, he said.
While the restructuring is on, it is not unusual to expect the existing management or certain key people to continue, as otherwise you might as well wind it up as an insolvency professional can’t just step in and start running a company.Anand Desai, Partner, DSK Legal
The Insolvency and Bankruptcy Code also gives these professionals the “overriding powers” to take action against questionable behaviour and appoint external consultants. If the management tries to interfere or take inconsistent steps, the professional can take corrective measures, Desai said.