IBBI chairman M S Sahoo defends 94% haircut for stressed firm

The resolution plan allowed the acquirer, Synergies Castings, to pay Rs 0.54 bn to its creditors. The total dues were over Rs 9 bn

The Insolvency and Bankruptcy Board of India (IBBI) Chairman M S Sahoo defended the large haircut lenders had to take in the case of Synergies Dooray. He said that was the best option.  Lenders took a haircut of 94 per cent, stirring a controversy. 

At an event of the Institute of Chartered Accountants of India on Wednesday, Sahoo said, “The company’s net worth went into negative when it was referred to the BIFR (the Board of Industrial and Financial Restructuring). Liquidation would have fetched the lenders much less than what they got due to the resolution.” If the assets of the company were liquidated, creditors would have barely received an eighth of what they got. The country’s first corporate resolution plan under the Insolvency and Bankruptcy Code has caused ripples in the banking and finance industry, with the National Company Law Tribunal permitting Synergies-Dooray Automotive to settle a minuscule amount of its liabilities. 

Synergies-Dooray Automotive used to manufacture and supply aluminium alloy wheels to global car makers.

The resolution plan allowed the acquirer, Synergies Castings, to pay Rs 0.54 billion to its creditors. The total dues were over Rs 9 billion. The terms of repayment were also attractive. Synergies Castings will have to pay Rs 0.2 billion upfront; the rest can be paid over five years.

The principle amount of the loan was Rs 2.15 billion. The rest was accumulated interest, statutory dues, and other payments due to creditors.

Edelweiss had also appealed to the National Company Law Appellate Tribunal against the NCLT’s order. Kokata-based insolvency professional, Mamata Binani, was the resolution professional in this case.

Sahoo said initially, number of companies will go for liquidation. As the code gains momentum, insolvency professionals will realise that resolution will be more beneficial than liquidation. He called liquidation an anti-thesis of resolution.