A consolidated insolvency proceeding or group insolvency, if accepted by the NCLT, may generate more interest among potential bidders than individual firms
Posted 08.12.21, 02:53 AM
The financial creditors of the Srei group’s non-bank finance companies – Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL) – could go ahead with a joint insolvency proposal with the majority of creditors on board with the idea.
At the second SEFL creditors committee meeting on November 29, the administrator appointed by RBI assessed the creditors committee on the current state of the insolvency resolution process, the composition of the creditors committee based on complaints received and deliberated on the resolution strategy which included group resolution.
The corporate insolvency resolution process was initiated in the two companies separately and two cases were admitted to the Calcutta bench of the National Company Law Tribunal (NCLT) after the Reserve Bank replaced the board. directors of the two companies on October 4.
A consolidated insolvency proceeding or group insolvency, if accepted by the NCLT, may generate more interest among potential bidders than individual firms. It will also uncover the true value of the assets stacked in different companies.
According to sources, 90 percent of lenders accepted the proposal for a joint resolution. According to the Insolvency and Bankruptcy Code, any decision of the creditors’ committee, unless the code provides otherwise, requires a minimum of 51 percent of the voting shares of financial creditors.
There are 40 SEFL financial creditors whose claims worth Rs 31,867.75 crore were admitted following a public announcement made on October 11.
In 2019, the then-current board of directors of the two NBFCs approved the transfer of the lending, interest-generating and rental activities of SIFL as a going concern through a sale. down to SEFL in exchange for fully paid shares and SEFL became a 100% subsidiary of SIFL.
Several lenders and rating agencies had expressed concerns about the transfer because the nature of the advances from the two companies was structurally different.
RBI, before replacing boards of directors and appointing the former Bank of Baroda CGM – Rajneesh Sharma – as a director, had conducted a special audit of SIFL and SEFL and advised to reassess and reassess the relationship with certain entities. Compliance with prudential standards, including revenue recognition, asset classification and provisioning, corporate governance and related party transactions were among the concerns of lenders.
However, according to resolution professionals, NCLT courts are reluctant to allow collective insolvency. The Insolvency and Bankruptcy Board of India had established a working group to assess a group’s insolvency and a framework was recommended to facilitate insolvency resolution and liquidation of group companies.