The National Company Law Tribunal has created history under the new Insolvency and Bankruptcy Code it last week ordered winding up of two companies – VNR Infrastructures and Bhupen Electronic – after the borrowers and lenders failed to come up with a plan to revive operations. These companies, though small, set a precedent that the new law is living up to its promise of delivering justice in a time-bound manner.
The Hyderabad bench of the tribunal orally pronounced a liquidation order for VNR while a judgement on liquidation of Bhupen Electronic was passed by Mumbai bench. ET considers antecedents in both cases.
Promoted by Andhra MLC Vakati Narayan Reddy, the company approached the NCLT in February for initiating corporate insolvency. Its petition showed net worth completely eroded and a loss of Rs 125 crore. The State Bank of India and others had a joint exposure of Rs 1,102 crore in the company as loans and guarantees.
An inde pendent valuation report valued VNR at Rs 80 crore. The company pro posed a resolu tion plan in volving Rs 850 crore, wherein 50% of the loan would be con verted into eq uity and the bal ance into debt payable over 15 years.
A second resolution plan proposed cash payment of Rs 300 crore over a single year. Senior bank officials said the lenders rejected both plans on grounds that VNR did not have the necessary cash flow to support payments.
“Also, when a company has a loan of over Rs 1,000 crore and is valued at Rs 80 crore, why would it want to make a one-time cash settlement of Rs 300 crore, a huge markup over the value of assets?” said a banker.
A person with direct knowledge of the development said, “Lenders conveyed to the company that they would accept a one-time settlement of Rs 300 crore provided part of the cash was paid up front, which was not accepted by the debtor.”, VNR told NCLT that a techno economic viability study by Itcot Consultancy and Services showed technical and feasible viability.
A senior company official said, “Creditors have looked at the proposal with prejudice and thus the whole purpose of the Code is defeated.”
Bhupen’s committee of creditors proposed liquidation on grounds that it had not been operational for almost a decade and did not have anyone on its payroll.
VIP Finvest Consultancy initiated insolvency proceedings against Bhupen Electronic. The committee of creditors did not come up with any resolution plan nor receive one from any of the parties involved.
Since land and its building were the sole fixed assets of the company, lenders suggested liquidation rather than another 90-day extension for working out a resolution plan.