Reid & Taylor Insolvency: Employees Versus Disgruntled Creditor
The only thing that stands between Reid & Taylor Ltd.’s liquidation and an employee-led rescue effort is the eligibility of the bidder: Silverdale Services.
On Jan. 10, the Singapore-based bidder submitted its financial reports to the resolution professional to comply with the order of the National Company Law Tribunal’s Mumbai bench. Venkatesan Sankanarayanan, the resolution professional for the insolvent firm, will assess the financial documents to determine whether the subsidiary of Hong Kong’s SPGP Holdings is eligible to bid. An investor, according to the resolution professional, must have a net worth of over Rs 50 crore to be eligible to bid for the Reid & Taylor account.
Silverdale’s entry into the resolution process for the premium fabric maker has been last minute and climactic. It decided to back a last-minute bid by a then unregistered union formed by 200 of the 1,200 employees of Reid & Taylor—a more than 170-year-old Scottish brand. The subsidiary of S Kumars Nationwide Ltd., which itself is facing insolvency proceedings, owes lenders more than Rs 4,000 crore, according to the claims admitted by the NCLT.
This would have been a regular insolvency proceeding if it weren’t for the fact that Reid & Taylor was admitted by the NCLT in April 2018 and the 270-day period for the resolution process is already over.
Having failed to elicit a suitable resolution plan, the matter looked set to go the way 76 other companies have - liquidation. It is the most-used route to resolve a stressed asset under the Insolvency & Bankruptcy Code, according to data collated by the Insolvency & Bankruptcy Board.
The NCLT, however, decided to give the Reid & Taylor insolvency case another chance on “humanitarian grounds”. The bench, comprising members V Nallasenapathy and Bhaskara Pantula Mohan, was moved by an employees’ plea. The union said it was in talks with potential investors and lenders must consider their bid.
Once the resolution professional has ascertained the bidder’s eligibility, a formal bid by the employee unions will be submitted to the CoC for assessment. The NCLT has not yet established a timeline for this bid.
But this employee-led last minute rescue effort has left creditors in a quandary. The committee of creditors will assess any plan submitted to it and won’t be inclined to approve anything with long repayment cycles, a creditor to Reid & Taylor said on the condition of anonymity as the person isn’t authorised to speak to the media.
According to a lawyer representing lenders, the CoC is worried about promoter funds finding their way back into the company. The creditors have therefore instructed the resolution professional to thoroughly check the financial investor’s background to avoid such a situation, the lawyer said.
How Did Reid & Taylor Get Here?
Reid & Taylor is not new to financial stress and uncertainty about ownership.
In May 2013, Kolkata-based UCO Bank Ltd. released a newspaper advertisement classifying Nitin Kasliwal, the promoter of S Kumars Nationwide, as a wilful defaulter and warned the public against engaging with him. The Reserve Bank of India defines a wilful defaulter as a borrower who doesn’t repay loans even when financially capable or one who siphons bank loans for personal use.
Promoters of S Kumars Nationwide had stopped cooperating with lenders, which made any kind of restructuring or resolution difficult, a former banker involved with the talks said requesting anonymity.
After UCO Bank, Punjab National Bank Ltd., Union Bank of India Ltd., IDBI Bank and Central Bank of India Ltd. also declared Kasliwal a wilful defaulter.
That plunged the group into further financial stress. Meanwhile, revenue from its primary textiles business started dwindling and the company reported back-to-back quarterly losses. The parent hasn’t reported quarterly numbers since June 2014. An attempt to get private equity funding for Reid & Taylor also failed.
In May 2018, a month after Reid & Taylor was admitted into insolvency, S Kumars Nationwide was also dragged to the insolvency court with lenders submitting claims worth more than Rs 7,400 crore.
The resolution professional also filed a case against the promoters of S Kumars Nationwide and Reid & Taylor for fraudulent transactions worth over Rs 3,500 crore.
The Finquest Angle
The only party strongly contesting the employees’ right to participate in the resolution process for Reid & Taylor is a financial creditor Finquest Financial Solutions Ltd., which controls loans worth Rs 770 crore.
The employee union—now registered as RTIL Employees Welfare Association —claimed Finquest acquired the loans from ICICI Bank at Rs 50 crore.
Finquest wants the company to be liquidated as no eligible buyer was found when the resolution period ended. Reid & Taylor’s liquidation value is estimated to be around Rs 150 crore.
The union has written to the insolvency board and the NCLT saying that Finquest is promoted by investor Bharat Patel and his family and that through liquidation, he intends to take over the company at throwaway prices.
The Finquest website lists Patel as “chief mentor” to his son and Managing Director Hardik Patel.
A second lawyer closely involved with the case confirmed that as a financial creditor, Finquest has the right to purchase the company under liquidation.
Bharat Patel owned 15.24 percent stake in S Kumars Nationwide as of September 2015, making him the largest shareholder in the company, according to the last filing to exchanges. In comparison, promoters owned 2.92 percent.
This isn’t the first time that Patel is dealing with troubles at S Kumars Nationwide or its subsidiary. In April 2015, he led a group of disgruntled retail shareholders of the parent to call for an extraordinary general meeting to remove the management for the losses caused. The shareholders sought to appoint four of their representatives on the board but eventually abandoned their plan.