Consolidated insolvency proceedings may generate more interest among potential bidders than sole proprietorships
Posted on 11.19.21, 01:39 AM
The financial creditors of two non-bank financial companies of the Srei group – Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL) – can assess the prospect of a consolidated insolvency proceeding.
The corporate insolvency resolution process was initiated in the two companies separately and two cases were admitted by the Calcutta bench of the NCLT after the RBI replaced their boards of directors on October 4, 2021.
Consolidated insolvency proceedings may generate more interest among potential bidders than individual companies. Sources have said that lenders are keen to explore all possibilities that will benefit all stakeholders.
Total liabilities are around Rs 18,000 crore in bank loans and Rs 10,000 crore in external commercial loans and bonds. The corporate insolvency resolution process will help lenders collect their debts, but the haircut is raising concerns.
According to insolvency professionals, a consolidated proceeding will uncover the true value of the assets that are stacked in different companies. Plus, with just one resolution professional, decisions will be more holistic.
The issue stems from a 2019 decision whereby the board of directors of the two NBFCs approved the transfer of the lending, interest-earning and rental activities of SIFL as a going concern by the through a down sale to SEFL in exchange for fully paid shares and SEFL became a 100% subsidiary of SIFL. The rationale at this stage was to strengthen SEFL’s asset books, equipment financing being the group’s area of intervention.
Lenders were wary of the stock market slump and rating agencies had also expressed concern because SIFL’s advances were intended for companies involved in carrying out infrastructure projects of a different nature from equipment financing.
RBI has also, in its inspection report and risk assessment report for the year ended March 31, 2021, identified “certain parties” as probable related / related companies.
Creditors should apply to the NCLT for majority judicial approval, but views could vary.
Consolidated insolvency proceedings would imply that lenders would have to take into account the assignment of receivables, which they were not in favor of. In addition, 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.