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NCLT admits Go First's insolvency plea, puts it under moratorium

Go First filed for insolvency this month, blaming "faulty" P&W engines for the grounding of about half its 54 Airbus A320neo

Go First
The NCLT has appointed Abhilash Lal of Alvarez and Marsal interim resolution professional (IRP) to take charge of the airline. The tribunal said the professional should ensure that employees of the airline were not laid off
Bhavini MishraAbhijit LeleAneesh Phadnis New Delhi/Mumbai
5 min read Last Updated : May 10 2023 | 12:41 PM IST
The Delhi Bench of the National Company Law Tribunal (NCLT) on Wednesday accepted Go First’s insolvency plea, resulting in the airline being put under a moratorium in accordance with the Insolvency and Bankruptcy Code (IBC).

“The application of the Corporate Applicant (Go First) is admitted. As a necessary consequence, the moratorium in terms of Section 14(1) (a), (b), (c) & (d) is declared,” the order said. All or certain legal remedies against debtors are suspended during a moratorium. This means that lessors of Go First will not be able to take possession of the aircraft.

Talking to Business Standard, Go First Chief Executive Officer Kaushik Khona said: “This is a historic ruling. An application of insolvency has been admitted promptly. The order prevents a viable airline from becoming an unviable one. The purpose of the IBC has always been revival.”

The airline has informed the civil aviation ministry it would be able to restart operations in two weeks and is mobilising funds. “Protecting customer interests is the priority,” an official said.

The airline’s lenders too will be discussing this week the way forward, including a resolution plan. While the NCLT order means the firm does not have to make repayment on its existing loans, fresh funds too will not be granted. Banks will also internally assess the provisions and look at the feasibility of resolution. Senior advocate Sanjay Sen said: “Lessors not being able to take possession of the aircraft may be the immediate objective or takeaway, which will give a reasonable chance to the airline to resume operations with the support of the lenders. In the intervening period, it’s a good move to safeguard the interests of employees and other stakeholders.” 

SMBC Aviation Capital, which is one of the lessors of the airline, has filed an appeal against this order. It is listed for hearing on May 11 before the National Company Law Appellate Tribunal (NCLAT).

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The NCLT has appointed Abhilash Lal of Alvarez and Marsal interim resolution professional (IRP) to take charge of the airline. The tribunal said the professional should ensure that employees of the airline were not laid off.

“The IRP shall ensure that retrenchment of employees is not resorted to as a matter of course. In any event, any such decision/event should be brought to the attention of this NCLT,” the court order said.

An IRP is a professional who is the whole and sole of the company after the insolvency application has been approved by the NCLT. The court also directed the IRP to take steps, such as executing the arbitral award in favour of Go First against Pratt and Whitney (P&W) so that the airline could run its service.

The airline had told the tribunal that it had won an arbitral award in Singapore against P&W, directing the latter to supply 10 serviceable engines by April 27 this year and 10 serviceable engines each month till December 2023.

“P&W failed to comply with the arbitral orders, for which the Applicant (Go First) has already initiated enforcement proceedings against P&W in Delaware, US, as well as other relevant jurisdictions where engines are located,” Go First told the tribunal.

Reacting to the order, P&W’s spokesperson said: “Go First’s allegations that P&W is responsible for its financial condition are without merit. P&W will vigorously defend itself against Go’s claims and is pursuing its own legal recourse.”

Khona said: “A major issue is to get the P&W engines and that is what the arbitral award means. The IRP has been directed to pursue that too (arbitral award).”

He said 27 aircraft of Go First were functional. The airline on its website said all its flights had been cancelled until May 19.

Go First filed for insolvency this month, blaming “faulty” P&W engines for the grounding of about half its 54 Airbus A320neo. In its insolvency application, the airline said it had cancelled 4,118 flights (serving 77,500 passengers) in the past 30 days (then).

According to the insolvency application, the airline said it defaulted on paying Rs 2,660 crore to its lessors and Rs 1,202 crore to its vendors. The airline, last week, had urged the NCLT to either grant it an interim moratorium or admit its insolvency plea under the IBC.

The lessors (SMBC Capital Aviation, GAL, CDB Aviation, Sonoram Aviation Company, and MSPL Aviation) have opposed the airline’s plea and said it could not ask for a moratorium before they were heard. The tribunal in its ruling rejected the lessors’ arguments.

Ajay Monga, partner, SNG & Partners, said: “It is a wait-and-watch situation for the airline.”

Prantik Hazarika, aviation law expert and partner at Khaitan & Khaitan, said: “As of now the aircraft lessors will now have to wait in respect of deregistration of the aircraft from the notation register of the Directorate General of Civil Aviation.”

What the order means for Go First
  • Lessors will be prevented from taking possession of aircraft
  • Will safeguard the interests of employees and other stakeholders
  • Will prohibit any suits or proceedings against airline, and disposing of its assets

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Topics :NCLTairlinesCompaniesInsolvency and Bankruptcy CodeDGCAAviation

First Published: May 10 2023 | 12:41 PM IST

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