IBC: Bidders want clarity on haircut to be offered to operational creditors

With the resolution plans of most bidders taking care of only secured creditors, operational and unsecured creditors plan to take the fight to SC to get their dues

With numerous unsecured and trade creditors going to the National Company Law Tribunal (NCLT), bidders of stressed assets want clear guidelines on the amount of dues to be offered to unsecured creditors in the next round.

With the resolution plans of most bidders taking care of only secured creditors, operational and unsecured creditors plan to take the fight to the Supreme Court to get their dues.

In Binani Cement, the resolution plan had taken into account the full dues of only one unsecured creditor, IDBI Bank, which had a say in the voting, and just 10% to another, State Bank of India, Hong Kong.

In the case of Bhushan Steel, unsecured creditors were left high and dry. 

“That is (operational creditors) for Tata Steel to take care of. We expect our money by the first quarter of next fiscal,” said the CEO of a large private sector bank. 

Larsen & Toubro, one of the unsecured creditors, moved the National Company Law Tribunal’s (NCLT’s) Delhi Bench, seeking Rs 9 billion in dues from Bhushan Steel. The matter is pending.

The discrimination between unsecured and trade creditors will derail the resolution process, said KK Maheshwari, managing director of UltraTech Cement. 

“It is the fiduciary duty of the resolution professional and the Committee of Creditors to make sure that all creditors are paid,” he added.

UltraTech offered Rs 7 billion more for Binani Cement, but its offer was rejected by the resolution professional and the Committee of Creditors, leading to litigation by the Aditya Birla company in the NCLT, Kolkata.

Unsecured lenders also moved the tribunal against resolution professionals and lenders to Binani Cement. SBI Hong Kong and Exim Bank have moved the NCLT, Kolkata Bench, seeking their dues.

“The preamble to the Insolvency and Bankruptcy Code (IBC) called for maximising the value of an asset and balancing the interests of all stakeholders. 

But the way the resolution process is moving, it would only lead to litigation,” said Maheshwari.

UltraTech has made an offer to buy Binani Cement's shares from its promoter Binani Industries, thereby opening another front for litigation.

According to current rules, the resolution professional can change certain things in the bidding process. But this needs to change so that the bid process cannot be challenged later, corporate lawyers said. “Resolution professionals are given the liberty to formulate bid-related processes on a case-by-case basis. This needs to change so that the bid process cannot be later challenged and a cut-off date for challenging the process needs to be brought in,” said Malav Virani, partner of MDP & Partners.

“We are seeking fairness and equity in the entire process. One cannot discriminate against unsecured creditors,” said Maheshwari.

The NCLT’s Kolkata Bench is hearing the Binani Cement case and has sought all details from the resolution professional next week.