ESSAR STEEL VERDICT
STRENGTHENING OF COMMITTEE OF CREDITORS COMES WITH RIDERS
ArcelorMittal saga finally achieved quietus on november 15,2019.The apex court blessed them with resolution plan for rehabilitating essar steel. But the judgement traverses a range of issues. The main question which deals with it is the extend to which National company law tribunal(NCTL) and the National company law appellate tribunal(NCLAT)can interface with a resolution plan when it is approved by the committee of creditors(coc).
Section 30 of the IBC were a reaction to the NCLAT's decision on july 4,2019.NCLT essentially held that the coc has no role in the distribution of the upfront payment by the resolution applicant as part of the plan.It is also held that the waterfall mechanism could not be applied in the upfront payment among the creditors because it is only relevant for liquidation.
The amendment made it clear that operational creditors would, at a minimum receive liquidation value or the value which would they have upfront payment under the resolution plan had been distributed.It pointed out that this not only validates the applicability of section 53 at the stage of resolution but also clarifies the central role of coc in approving the plan and in making an upfront distribution.
NCALT judgement of july 4,2019 was carried to the supreme court and is ultimately reserved.The supreme court has laid out their principles very clearly.Supreme court stated that "it is the commercial wisdom of this majority of creditors which is to determine,through negotiation with the prospective resolution applicant as to how and in what manner the corporate resolution process is to take place".
The NCLT is merely supposed to go through the laundry list of requirements and ensure that the minimum conditions set out have been satisfied.The message of the court is very clear that is there must be minimal interference with a resolution plan by the NCLT/NCLAT. From the perspective of financial creditors the only way to lend is to conjointly read the judgement with earlier supreme court judgement in swiss ribbons case.The arguments for financial creditors is balancing the interests of all stakeholders or equitable treatment within the same class of creditors only of similar situated creditors.
The court states that the equitable treatment is based on the class which it belongs even if it is secured or unsecured,financial or operational.If there is an equitable treatment ,the NCLT cannot interfere the recent judgement since such a resolution plan would balance stakeholders interests. it would be easy for the makers to clarify the part of supreme court judgement with a suitable amendment to the code.
STRENGTHENING OF COMMITTEE OF CREDITORS COMES WITH RIDERS
ArcelorMittal saga finally achieved quietus on november 15,2019.The apex court blessed them with resolution plan for rehabilitating essar steel. But the judgement traverses a range of issues. The main question which deals with it is the extend to which National company law tribunal(NCTL) and the National company law appellate tribunal(NCLAT)can interface with a resolution plan when it is approved by the committee of creditors(coc).
Section 30 of the IBC were a reaction to the NCLAT's decision on july 4,2019.NCLT essentially held that the coc has no role in the distribution of the upfront payment by the resolution applicant as part of the plan.It is also held that the waterfall mechanism could not be applied in the upfront payment among the creditors because it is only relevant for liquidation.
The amendment made it clear that operational creditors would, at a minimum receive liquidation value or the value which would they have upfront payment under the resolution plan had been distributed.It pointed out that this not only validates the applicability of section 53 at the stage of resolution but also clarifies the central role of coc in approving the plan and in making an upfront distribution.
NCALT judgement of july 4,2019 was carried to the supreme court and is ultimately reserved.The supreme court has laid out their principles very clearly.Supreme court stated that "it is the commercial wisdom of this majority of creditors which is to determine,through negotiation with the prospective resolution applicant as to how and in what manner the corporate resolution process is to take place".
The NCLT is merely supposed to go through the laundry list of requirements and ensure that the minimum conditions set out have been satisfied.The message of the court is very clear that is there must be minimal interference with a resolution plan by the NCLT/NCLAT. From the perspective of financial creditors the only way to lend is to conjointly read the judgement with earlier supreme court judgement in swiss ribbons case.The arguments for financial creditors is balancing the interests of all stakeholders or equitable treatment within the same class of creditors only of similar situated creditors.
The court states that the equitable treatment is based on the class which it belongs even if it is secured or unsecured,financial or operational.If there is an equitable treatment ,the NCLT cannot interfere the recent judgement since such a resolution plan would balance stakeholders interests. it would be easy for the makers to clarify the part of supreme court judgement with a suitable amendment to the code.
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