Videocon Group: NCLT doubts Videocon’s sale remained confidential

(This story originally appeared in on Jun 16, 2021)

MUMBAI: In its order approving the resolution plan submitted by for the Videocon Group, the National Company Law Tribunal (NCLT) has raised doubts over maintenance of confidentiality during the process. NCLT has highlighted how Vedanta’s bid was close to the liquidation value, which is a secret. Pointing out that the successful applicant was paying “almost nothing” and the creditors were taking a haircut of 95.9%, the tribunal has called upon the Insolvency and Bankruptcy Board of India (IBBI) to review bankruptcy regulations.

Under the resolution plan, out of the total claim amount of Rs 71,433 crore of creditors, claims admitted are for Rs 64,838 crore and the plan that was approved was for an amount of only Rs 2,962 crore, which is just 4.15% recovery and the total haircut to all the creditors is 95.85%.

The court also compared the 99.3% haircut that the operational creditors had to take with a “tonsure” or “total shave”. In its order, the NCLT requested lenders and the buyer to pay more to operational creditors, especially the micro, small and medium enterprises.

The order appointed R K Agarwal, former whole-time member at Sebi, as an observer and permanent invitee in the steering committee to ensure smooth functioning and change over to the successful resolution applicantWhat comes out from the order is that the winning bid by Vedanta is very close to the liquidation value.

The assenting creditors get 4.9% of their money back, in proportion to what is paid by the successful applicant. Dissenting creditors, in this case, will get 4.6%, which is in proportion to the liquidation value as estimated by lenders

“Surprisingly, the resolution applicant (Vedanta) also valued all the assets and liabilities of all the 13 companies and arrived at almost the same value of the registered valuers. According to regulations, the liquidation value and fair market value is kept confidential and informed to the committee of creditors (CoC) members only at the time of finalising the resolution plan and even in the present case the resolution bids were opened in the 15th CoC meeting held on September 2, 2020, wherein liquidation value and fair market value was informed to the members of CoC,” the court observed in its order.

“Given the facts and circumstances as discussed above, a doubt arises upon the confidentiality clause being in real-time use. Therefore, we request IBBI to examine this issue in depth to ensure the confidentiality clause is followed, without any compromise in letter and spirit by all the concerned parties, entities connected in the CIRP,” the order said. The order goes on to say that alternatively, the IBBI can frame appropriate regulations, safeguards thereby maximising the value of the assets of the corporate debtor.

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