IL&FS seeks NCLAT approval for selling insolvent businesses without shareholders' nod

Share sales: IL&FS group has sought the National Company Law Appellate Tribunal (NCLAT) for permission to sell its share with a "haircut" and without the need for shareholders' assent in its insolvent companies.

The businesses have unsustainable debts and are placed under the Category II list of the resolution framework. 

The government sought time to file a response from the National Company Law Appellate Tribunal (NCLAT) in its previous hearing in the third week of March over IL&FS' provisional application for offloading a stake in its group entities which come under Category II, whose maximum bid amount was lower than debts over them. 

As part of the protocol , "lenders, as well as shareholders, would anyway have to take a haircut for their respective debt/ and equities," IL&FS said, adding that it would also make sure to revive such an entity, balancing stakeholder interest. 

The resolution of such companies is in accordance with the process of the Insolvency & Bankruptcy Code, which does away with the need for shareholder consent, IL&FS has submitted. 

This will "resolve the category II companies (where IL&FS shareholding is less than 100 per cent) by writing down 100 per cent of their shareholding in exchange for bid proceeds to be utilised to discharge 100 per cent of the debt liability of the said entity". 

This will aid and consequently quell debt liabilities of Category II listed companies. 

The IL&FS plea also underlines the dispute it faces from other stakeholders of these companies, which hinders a successful resolution, it filed before the NCLAT.

IL&FS said it is facing several reservations from stakeholders, especially present lenders and non-IL&FS group shareholders in companies like IL&FS Engineering and Construction Company Ltd (IECCL) and Hill County Pvt Ltd (HCPL). 

They are "either blocking such a resolution by exercising their right to vote in the Committee of Creditor of the relevant company or filing an application before the NCLT", blocking an effective resolution of Category II companies. 

Earlier, the NCLAT had issued a notice to the Centre over IL&FS' plea. But in the latest hearing, the government’s counsel sought two weeks for filing a response. 

"This application has been filed by IL&FS seeking writing down of capital for resolution of category II companies. Notice was issued to the Union of India," the NCLAT order noted.

Apart from this, IL&FS also requested NCLAT to permit it for uploading this application on the website and provide a chance for any aggrieved shareholder to file a reply to its plea, which was granted. 

A two-member bench of the NCLAT gave directions for listing the matter on May 14, along with IL&FS’ other applications. 

As per the company, "By virtue of this mode of resolution, IL&FS group itself is not deriving any benefit from the sale of equity. Rather, in fact, the bids proceed will be for the benefit of the lenders and in turn, the company..." 

"Writing down shareholding will be commercially feasible and viable as the new bidder will be able to exercise complete control over the entity, without any interference from the previous management," it added. 

This will make way for a conclusive solution for the entity, "keeping in mind complexities of the IL&FS group, the need to balance the interest of all stakeholders, value maximisation of assets and larger public interest involved". 

IL&FS had a debt burden of Rs 94,000 crore at the time of crisis. It is undergoing asset monetisation, as part of a framework for resolution the NCLAT has approved, which also has a provision for disseminating sale proceeds.

The resolution charter has divided the companies as Category I and II, with the former having bidders who are ready to take financial and operational liabilities.

The companies put under the second category encompass those where the financial bid amount offered is lower than their liability. For Category II companies, "the financial bid value received in respect of that sale company would be distributed to the creditors of that Sale Company for their admitted claims existing as of the Cut-Off Date," IL&FS said, adding that it will result in the extinguishment of 100 per cent debt liabilities of the sale company.

(With PTI Inputs)