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Insolvency and Bankruptcy Code amendments to impact Essar Steel, Jet Airways resolutions

Officials said wherever the resolution plan has not been finalised or has been appealed against, this provision will come into effect retrospectively.

Published: 20th July 2019 07:10 AM  |   Last Updated: 20th July 2019 07:10 AM   |  A+A-

Essar Ports Ltd

Image used for representational purpose only (File | PTI)

Express News Service

NEW DELHI:  Amendments to the Insolvency and Bankruptcy Code (IBC) that are likely to be passed by the Parliament next week will have a direct bearing on the ongoing insolvency proceedings of Essar Steel, Jaypee Infratech and Jet Airways.

The Union Cabinet last week cleared the amendments, which stand to ensure that the resolution process is concluded within 330 days and also clarified on certain grey areas including the rights of operational and financial creditors.

Officials said wherever the resolution plan has not been finalised or has been appealed against, this provision will come into effect retrospectively. Accordingly, Essar Steel creditors, both financial and operational, would be affected once the Bill is passed. The amendments have placed the Committee of Creditors (CoC) in the driver’s seat; it has given an upper hand to financial creditors and ensured minimum rights to others who are not onboard the resolution plan, in retrospective manner.

While the NCLAT, in an order, has provided for equal share for financial and operational lenders, State Bank of India has moved the Supreme Court against the ruling. “The uncertainty caused by the NCLAT judgement regarding priority of payments to creditors in case of Essar Steel, which would have distorted the credit market in the country, has been addressed by the proposed amendment,” said Sameer Mittal, managing partner, Sameer Mittal & Associates. 

This means that the amount will have to be redistributed and it will take longer than the anticipated time.
The insolvency of Jet Airways will also be impacted when the amendments come into effect, where it will allow for corporate restructuring of non-performing assets — acquisitions, mergers and demergers — where the CoC may decide up on taking haircuts to allow for a possible resolution.

Also, financial creditors will get the first right to proceeds from bankruptcy resolution. In Jet’s case, financial creditors have claimed Rs 10,231 crore, while 2,400 operational creditors have claimed Rs 12,372 crore.

Jaypee case: Home buyers to have their say

The amendments to IBC will also lend some relief to homebuyers as they are being treated as financial creditors; in case of an insolvency, they would have rights similar to that of banks. Analysts said even if half of the homebuyers vote one way, they will be treated as the view of the majority of home buyers.

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