NCLT rejects Jyoti Structures' resolution plan, orders liquidation

This is the first case out of the Reserve Bank of India's first list of 12 large stressed corporates referred to the bankruptcy court, that has been directed to go for liquidation

The National Company Law Tribunal (NCLT) bench here has rejected the resolution plan offered for Jyoti Structures. It has directed the Resolution Professional (RP) appointed for the insolvent engineering, procurement and construction (EPC) entity to file applications for its liquidation. 

This is the first case from the Reserve Bank of India’s first list of 12 large and defaulting corporates referred to the bankruptcy court that has been directed to go for liquidation. 

In another case, the Chandigarh bench of the NCLT approved UK-based Liberty House’s resolution plan to acquire Amtek Auto. With this, British billionaire Sanjeev Gupta has bagged a second asset from the NCLT list. Last week, the Kolkata bench approved its resolution plan to acquire Adhunik Metaliks and its group company, Zion Steel.

Jyoti Structures owed lenders around Rs 80 billion. It was admitted for proceedings under the Insolvency and Bankruptcy Code (IBC) in early July last year. The resolution process went on for over a year, beyond the 270-day deadline prescribed under the Code. 

While 81 per cent of the lenders to Jyoti Structures had voted in favour of the resolution plan (in April), the bench comprising B S V Prakash Kumar and Ravikumar Duraiswamy decided to reject the offer and directed the RP to file for liquidation on Monday. The final order would be provided on Friday. 

A clutch of wealthy investors, led by Sharad Sanghi, who heads Netmagic Solutions, had provided a resolution plan for Jyoti Structures under which the lenders had to incur a haircut (writeoff) of a little over 80 per cent on the principal loan amount, or a loss of Rs 70 billion. They offered to infuse Rs 1.5-1.7 billion in equity capital upfront, while paying the lenders Rs 30 billion over the next 15 years. 

Though Liberty House did not reveal the buyout price for Amtek, sources said the enders have taken a haircut of around 65 per cent. Liberty was earlier reported to have made a binding offer of Rs 43.34 billion for Amtek. The latter got only two binding bids, from Liberty and Deccan Value. 

For Jyoti Structures, the RP has to appoint a liquidator to oversee the sale of company assets. 

A public announcement of his appointment would have to be made within five days. The liquidator has to be independent of all the parties to the matter and may sell the assets on a standalone basis, in a slump sale,  in parts or parcels. 

“The RP can be appointed by the NCLT as liquidator, if he consents. NCLT will have the power to replace him, while all management powers of the company, after the appointment of the liquidator, vests with the liquidator,” says Subodh Sadana, partner at Advaita Legal. 

All proceeds from the sale of assets have to be transferred to a newly opened bank account for the insolvent corporate, called the company liquidation account. After 15 days, if there is unclaimed money in this account, it will automatically be deposited into the central government's revenue account. 

After the sale of assets, the liquidator has to prepare an asset sale report for NCLT, listing the realised value for the asset(s), manner and mode of sale, if the value realised is less than that in the asset memorandum and details of the buyer. 

Once the company is liquidated, the liquidator has to provide a full and final report of the process, which shall form part of the application for dissolution of the corporate debtor. 

Experts say thelenders and operational creditors are not likely to recover the full value of their dues when an insolvent company goes for liquidation. The worry is that employees might not get their full salaries, as had been promised by the previous management. 

Under IBC, preference shareholders and equity shareholders come last in their claims from the liquidation proceeds. "There is no specific protection for minority shareholders in liquidation," Sadana said. 

Liberty House's investment in Amtek would be through GFG Alliance, which would also be running the two assets acquired by it under NCLT. The Delhi-based automobile component maker Amtek Auto, with forging, iron casting, aluminium and machining facilities in India, is also one of the clients of Adhunik Metaliks.

Way to insolvency

| Jyoti Structures admitted under the IBC on July 4, 2017

| Company owed lenders around Rs 80 billion

| Lenders approved of the resolution plan despite haircut over 80%

| DBS Bank alleged improper process was followed during bidding and lenders' voting

| 270-day deadline concluded on April 8, 2018