The curious case of Essar Steel IBC proceedings

A resolution plan for bankrupt Essar Steel was to be found within 270 days, in line with the statutory requirement of Insolvency and Bankruptcy Code. 

Published: 24th January 2019 11:16 AM  |   Last Updated: 24th January 2019 11:16 AM   |  A+A-

Essar Steel (File Photo | Reuters)

By Express News Service

HYDERABAD: A resolution plan for bankrupt Essar Steel was to be found within 270 days, in line with the statutory requirement of Insolvency and Bankruptcy Code. 

Now, even after 500 days, there seems to be no end in sight, while the resolution plan put in place by Essar’s committee of creditors runs the risk of ending up as a plan that never was. 

The National Company Law Tribunal (NCLT) is up against the clock to conclude the matter by January 31, but then lenders appear either impatient or uncertain about the finality and are taking matters into their own hands to let go of the bad loans. Just last week, SBI had put on block Rs 15,431-crore worth loans of Essar Steel, hoping to find a buyer or two by the month-end. SBI is in fact a late-comer, as other lenders like Axis and HDFC have already disposed off Essar’s loans last year. 

On the other side is ArcelorMittal, the successful bidder for Essar’s assets, having offered to pay `42,000 crore to lenders and an additional `8,000 crore towards capital expenditure. Though lenders and the resolution professional approved ArcelorMittal’s bid last October, NCLT is yet to give its blessings. One of the reasons for the delay includes a petition by Essar Steel promoters, who came up with a last-minute loan repayment plan, effectively preventing the company from slipping out of their hands. It owes over Rs 49,000 crore to about 25 lenders in all, but offered to pay `54,389 crore including interest, which is roughly Rs 12,000 crore higher than what ArcelorMittal had put on the table. 

In short, Essar, which originally defaulted payments, proposed to fully honour its debt commitments, but the proposal failed to cut ice with lenders. Around the same time, some operational creditors, Essar Steel shareholders and Standard Chartered separately challenged the resolution plan and the bid put in by ArcelorMittal. 

On Wednesday, hearing the petition filed by creditors seeking an early decision, the NCLAT asked the Ahmedabad bench to pass appropriate orders by January 31, failing which the appellate tribunal will step in. 

“The overriding objective of the IBC is maximisation of recovery for creditors and this has been established time and again by courts at all levels. Creditors of Essar Steel, including operational creditors, should not be forced to accept a resolution plan, which undervalues the company and its assets,” Essar said in a statement on Wednesday. 
 

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