Gujarat NRE Coke Ltd., one of the largest producers of met coke, has been ordered to be liquidated by the Kolkata bench of the NCLT under India’s new bankruptcy law. The NCLT, in its Jan. 11 order, also used its discretion to direct how the company will be liquidated: as a going concern by slump sale.
The company was pushed into insolvency under the Insolvency and Bankruptcy Code by an April 7 order, noting that it owed about Rs 3,600 crore to its secured and unsecured creditors. One resolution plan didn’t find support among lenders and another one by employees was submitted at the last minute and couldn’t be considered.
Though the hardship caused to employees is regrettable, the NCLT’s decision to honour statutory timelines is a positive development, Suharsh Sinha, insolvency lawyer at AZB & Partners, said.
The scheme of IBC vests very little judicial discretion with the NCLT so as to prevent it from using it arbitrarily, even if on the notion of fairness, equity and commercial reasonableness.Suharsh Sinha, Insolvency Lawyer, AZB & Partners
Rare Asset Reconstruction Pvt Ltd.’s resolution plan got approval of 14.31 percent of the financial creditors against the minimum requirement of 75 percent.
The employees of the company, who feared liquidation and loss of livelihood, sought to repay the secured lenders and address issues of all other stakeholders, the order said. Chief Commercial Officer Pawan Kumar noted that the company had 1,178 employees and workers and it had started making profits.
The resolution plan, however, was submitted on Dec. 30, just two days before the 270-day deadline, and couldn’t be considered by the committee of creditors.
Not having approved any resolution plan, the law triggers liquidation. Granting no extension, NCLT too ordered liquidation of the company.
The tribunal, however, did concede to the request of employees and workmen to sell the company’s business, assets and properties on a slump sale basis: to transfer whole or part of a business as a going concern. That was to preserve employment and protect livelihood of employees and workmen.
The company generated an operational profit of Rs 4.46 crore in October. The NCLT ordered the company be disposed of in three months as a going concern for a price equal to the total debt plus interest.
“The winding up provisions under the erstwhile companies act as well as the IBC specifically provide for liquidation of a company as a going concern since it fetches better value,” Amir Arsiwala, an independent advocate practicing insolvency matters, told BloombergQuint.
Under the erstwhile Companies Act, this was difficult to implement since the official liquidator required consent of the Bombay High court for every little thing as opposed to the IBC which gives insolvency professionals and private liquidators room to do so with minimal intervention of the tribunal, Arsiwala said.