Three-wheeled auto-rickshaws are parked near the IL&FS building, in Mumbai. (Photographer: Abhijit Bhatlekar/Bloomberg News)

NCLAT Lifts Debt Moratorium On 22 Indian, 133 Foreign Subsidiaries Of IL&FS

The National Company Law Appellate Tribunal today directed 22 domestic subsidiaries of Infrastructure Leasing & Financial Services Ltd. to service their operational and financial debt obligations. Additionally, it lifted the moratorium on debt repayments by 133 offshore group entities.

On Oct.15 last year, the NCLAT had allowed IL&FS and its 348 group entities to halt debt repayments until a resolution plan was worked out. The newly appointment board of IL&FS had subsequently decided to stop servicing debt across entities, including those that had the cash to support such repayments. This decision alarmed investors who feared that the ring-fenced special purpose vehicle (SPV) structure commonly used in infrastructure financing was being challenged.

To calm investor nerves, IL&FS proposed a new repayment structure to the courts which included categorising group entities into three categories — Green (firms that can meet all debt obligations), Amber (firms that can meet some debt obligations), and Red (firms that can’t meet any debt obligations).

On Monday, the NCLAT gave IL&FS the go-ahead to proceed with this repayment structure. According to the plan:

  • 22 domestic subsidiaries have been classified as “Green” as they could service all their financial and operational debt, as per their repayment schedule.
  • 10 companies are classified as “Amber” as they can service only their operational debt obligations and payment to senior secured financial creditors.
  • 38 are marked “Red” as they cannot meet any of their payment obligations, even those to senior secured financial creditors.

Also read: IL&FS Board Expresses Intent To Honour Ring-Fenced SPV Structure

While the tribunal didn’t lift the moratorium on the “Amber” and “Red” entities, it directed them to make necessary payments to maintain and preserve their “going concern” status. The accounting term “going concern” refers to the assumption that a company will remain in business for the foreseeable future, and not be forced to halt operations.

The government is still to assess and categorise 100 other domestic subsidiaries out of the 302 subsidiaries and jointly controlled companies of IL&FS, it informed the NCLAT. Out of the initial total of 348 IL&FS subsidiaries, 46 have either been closed, struck off, divested or liquidated, according to an affidavit filed by Rakesh Tiwari, regional director (western region), of the ministry.

In addition to the domestic subsidiaries, the moratorium has also been lifted for 133 group entities incorporated offshore.

All resolution plans for individual entities will be supervised by retired Supreme Court judge, Justice DK Jain, who will also oversee the sale process of companies of the insolvent infrastructure group.

The next date of hearing, when the classification of the remaining companies may be released, is March 12.

Also read: Why Mutual Funds Are Averse To Segregating Stressed IL&FS Assets