The resolution plan for bankrupt Alok Industries offered by Reliance Industries and JM Financial Asset Reconstruction Company is not a done deal yet, although a majority of lenders has endorsed it. Some creditors have objected to the contours of the proposal and this would delay the process, said two people familiar with the matter.
The proposal says that the lenders should assign their entire debt in favour of JM Financial ARC, which if done would take away their right to invoke personal guarantees given by the Jiwrajka, the promoters of Alok Industries.
The dissenting creditors, around 28% of the lenders in terms of the total debt, have informed the resolution professional that they are opposed to assigning their debt in favour of JM Financial ARC.
While the legal counsel of resolution professional Ajay Joshi of the view that if a resolution plan is approved it is binding on all lenders, the dissenting creditors think otherwise. “The very fact that these lenders have opposed the proposal means … they would not like to adhere to the terms of the plan,” said a senior bank official aware of the development.
The sole bidder had offered a Rs 5,050 crore cash payment to settle the company’s debt of Rs 29,500 crore, implying that the lenders would get only 17% of what Alok Industries owes them. However, in case of liquidation, the creditors would receive lesser as the liquidation value is only Rs 4,200 crore. IDBI Bank, Central Bank of India, Bank of India and Dena Bank are some of the banks that objected to the plan, said senior officials, although this could not be independently verified.
In almost all cases, banks have done a one-time settlement of loans while retaining the right to recover dues from promoters, but in this case, assigning debt means transfer of debt along with security from the books of the lenders to the ARC.
The only other case where banks had assigned debt was Bhushan Steel — in favour of Tatas. But that deal did not hit a roadblock since the proposal had received 99.8% vote from lenders.
Also, the haircut was so small in Bhushan Steel that lenders were not opposed to assigning debt in favour of Tatas. But here, the haircut is steep. If lenders let go of their right to invoke personal guarantees of promoters, they could face questions in future from investigative agencies.
Alok Industries had received a new lease of life with the amendment in the insolvency and bankruptcy law that reduced the voting threshold from 75% to 66% for a plan to be approved under the bankruptcy law.
Prior to this amendment, the proposal could not receive a vote of 75% twice in April. The bankruptcy court directed the resolution professional to go for a fresh round of voting in the backdrop of the amendment in the bankruptcy law and submit a report on June 25 to the adjudicating authority. In a voting last week, nearly 72% of the lenders voted in favour of the plan.
Source: Economic Times, June 25, 2018