NCLT dissolves Orchid Pharma's promoter firm, says no gain for shareholders

CoC says parent firm has no assets other than holding in Orchid Pharma, which itself is undergoing CIRP; Even if there is a resolution for Orchid Pharma, nothing would be left for investors

The National Company Law Tribunal (NCLT) has dissolved Orchid Healthcare Pvt Ltd (OHPL), the promoter company of debt-ridden Orchid Pharma Ltd, as it does not have any assets and a liquidation process under the Corporate Insolvency Resolution Process (CIRP) would only entail additional cash outflow without benefits.

OHPL holds around 22.64 per cent in Orchid Pharma, 99.99 per cent of which has been pledged with the pharmaceutical manufacturer's consortium lenders.

The Committee of Creditors (CoC) has said that OHPL does not possess any valuable assets other than the shares it holds in Orchid Pharma and since the latter is also currently undergoing the process of CIRP, the investment may not fetch any value. Even if there is a resolution for Orchid Pharma, there wouldn't be anything left for equity shareholders. This would mean that there would be no value realisable from OHPL.

Besides, OHPL did not have any business operations for the three years prior to the initiation of CIRP and since there are no employees and no tangible assets at present, the prospects of receiving a resolution plan would be remote and they argued that it would be only better option to order a direct liquidation. The NCLT has issued a favourable order, following which OHPL has been dissolved.

The resolution process for Orchid Pharma, which owes around Rs 3,300 crore to various lenders, is currently pending with the Supreme Court, as one unsuccessful bidder, Accord Life Spec, won a favourable order from the National Company Law Appellate Tribunal (NCLAT) against the NCLT order which approved Dhanuka Laboratories' resolution plan. NCLAT had set aside Dhanuka's plan and remitted the matter to NCLT observing that the value of Dhanuka's offer was below the liquidation threshold.

The NCLT, in its order in June, 2019, said while Dhanuka’s resolution plan value was Rs 570 crore, which is lower than the liquidation value of Rs 1,309 crore (according to the resolution professional's explanation), Orchid Pharma had a cash and bank balance of Rs 321.98 crore. This and some other factors brought the plan value to about Rs 1,116.04 crore, close to the liquidation value.

State Bank of India, one of the lenders, approached the Supreme Court against the NCLAT order, which the Apex Court stayed and ordered the tribunal to issue notices to the respondents.

Due to the legal battle, the trading Orchid Pharma shares has been stopped in recent months. Reopening of the trading would depend upon the Supreme Court order, according to the Resolution Professional. If the Supreme Court reinstates Dhanuka's plan, each shareholder with 218 shares in Orchid Pharma will get one share, he told shareholders in the Annual General Meeting held at Chennai on Monday.

This is the second attempt to find a successful resolution plan for the pharmaceutical manufacturer, which continues to produce antibiotic medicine ingredient and employs around 1,400 employees. Earlier, the NCLT nullified a resolution plan by US-based Ingen Capital after it was approved since the investor allegedly did not bring in money in accordance with the norms.