Mapletree moves NCLT against Falcon Tyres' lenders over its resolution plan

Accused Edelweiss Asset Reconstruction Company and other lenders of acting contrary to provisions of IBC by rejecting its resolution plan

Mapletree Leather Goods, the sole resolution applicant for the Ruia Group-owned Falcon Tyres, which is currently undergoing insolvency proceedings under the Bengaluru bench of the NCLT, has accused Edelweiss Asset Reconstruction Company, among other lenders, of acting contrary to the provisions of the Insolvency and Bankruptcy Code (IBC) by rejecting its resolution plan.

In a petition to the NCLT, Mapletree alleged that its proposed resolution plan of Rs 310, which was modified in December last year, after the Committee of Creditors (CoC) of Falcon Tyres raised objections, was rejected despite it being the sole applicant to save Falcon Tyres from liquidation.

Edelweiss, which took this Ruia Group company in NCLT, is the largest lender in Falcon Tyres after it took over loans from various financial institutions of Rs 20 crore and has around 85 per cent voting share in the CoC.

“The applicant (Mapletree) further sent e-mails to the respondents (lenders) informing that they are open to discussions on the terms of the resolution plan and further requested not to initiate liquidation proceedings,” the petition filed by Mapletree said.

It also claimed that its offer was superior than the liquidation value of Falcon Tyres and its plan included a working capital infusion of around Rs 150 crore.

According to sources close to Mapletree, in face of no tyre maker in the country evincing interest to acquire the assets of Falcon tyres owing to the asset quality, it submitted a bid, revised it upon recommendations of the lenders and claimed that the plan is complaint to IBC provisions.

“Lenders, however, rejected the offer and the resolution professional (RP) may soon approach NCLT suggesting liquidation as the only option. How can the RP propose liquidation in the presence of a resolution plan that promises to pay the lenders and workers, covers the resolution costs, secures the jobs of the employees besides others? This is against the spirit of IBC,” the source close to Mapletree said.

On the other hand, lenders reasoned that although Mapletree put in a bid, its offer was rejected as the upfront payment was too low and it promised to pay around Rs 100 crore over a three-year timeframe.

“Lenders aren’t willing to sit on bad debts for so long and want speedier recovery,” a lender to Falcon Tyres said.

In turn, lenders have suggested to Mapletree that if it is interested in the Falcon Tyre buyout, it may participate when the company is liquidated.

The lenders have raised concern about Mapletree's ability to turn the stressed company around, given that it is involved in tanning and dressing of leather, manufacture of luggage handbags, saddlers and harnesses. The applicant on its part has proposed to set up a monitoring committee of nominees from the lenders, workmen, RP and others who will look after the progress of the turnaround.

It will also seek advisory from industry professionals as well as retired judge from the Supreme Court or the High Court to monitor compliance and technical collaborations.

Nevertheless, Mapletree has approached the NCLT asking it to order the lenders to consider its proposal.

On the other hand, the Karnataka government has also been holding meetings with the Falcon Tyres trade union as well as with Mapletree and the lenders to restart operations, as it doesn’t want the company to land up liquidated.

In May 2018, at Edelweiss' behest, the NCLT ordered commencement of the insolvency resolution process. However, it was the second time Edelweiss has resorted to legal means to settle its claim. In 2017, it had moved court seeking liquidation but had withdrawn its plea at later stages of the case.

This asset reconstruction company was roped in by Falcon Tyres in 2015 to identify investors and reshuffle the management with the aim of mitigating accumulated losses. By 2017, Edelweiss had acquired about 85 per cent of Falcon Tyres's debt, becoming its largest lender. That year, moved court for liquidation.

The Ruia Group, led by industrialist Pawan Ruia, once considered the turnaround tycoon, acquired Falcon Tyres in December 2005 but by January 2015, lost control of the company after it became a minority stakeholder in its own firm.

Its other acquisitions – Dunlop India and Jessop & Company – also turned sick and closed down with the West Bengal government stepping in to take control of these two companies.