Arvind Lenders Pin Management Clause To Revamp

Lenders to Arvind Mills are safeguarding their existing and proposed investments in the textile major with a right to change the management in "certain events of default". The lenders will have larger representation on the board. Further, a five-member supervisory board will be formed by the lenders to oversee the operations , which . will ensure a check on the management.

All these safety measures, in terms of monitoring and corporate governance, have been incorporated in the "convenants applicable to the WC (working capital) debt and post-restructuring debt".

Moreover, if the situation warrants, the top management will be reshuffled or changed to ensure the interests of the lending banks. The riders have been laid down in the information memorandum on Arvind Mill's debt restructuring.

As a precautionary measure, one of the big five accounting firms is to be appointed for continual monitoring and distribution of cash flow. The lenders have also the right to appoint a lender's engineer to oversee the technical and operating parameters of the production facilities.

Going by the proposed agreement, the management will have to ensure that the terms of the proposed restructuring in the WC debt are adhered to in terms of ensuring monthly receivables of Arvind's shirt division of up to Rs 10 crore going into an escrow account to meet servicing of fresh debt.

It has been identified that the new Arvind board will consist of a maximum of 12 directors, of which the promoters will nominate a maximum of four directors. The lenders will nominate a maximum of four directors and choose the balance four, including the board chairman and finance director, from a list of three candidates suggested by the company for each post. Sanjay Lalbhai will be the managing director of the company and bear the responsibility of the day-to-day operations.

In the case of "certain defaults" warranting a change in the top brass, the lenders added that a non-executive chairman from the textile or financial sector would be elected, not necessarily a nominee from any of the financial institutions.

Currently the lenders have three nominees on the board -- B S Bedi from IDBI, Kalpana Morparia from ICICI and P D Vaidya from State Bank of Saurashtra, who is the leader in the working capital (WC) consortium.