Covid-19 clouds IBC resolution, applicants seek payment schedule relaxation

The Covid-19 pandemic is prompting successful resolution applicants to seek relaxation in the payment schedule. Resolution applicants of at least two corporate debtors from the Reserve Bank of India’s (RBI’s) first list of non-performing assets (NPAs) — Bhushan Power & Steel (BPSL) and Amtek Auto — asked for flexibility in the payment schedule in recent months.

In June, Deccan Value Investors (DVI), which won Amtek Auto, filed an application with the Supreme Court, asking for an extension of time to discuss terms with the committee of creditors (CoC) and assess the impact of Covid-19. The application was, however, dismissed by the apex court. DVI subsequently filed for the rectification of the order to clarify that it did not seekto withdraw.

Prior to that, DVI had requested a discussion with the lenders and the resolution professional (RP) about the impact of the pandemic and measures required to make the plan viable.

JSW Steel, too, had sought flexibility in the payment schedule for its Rs 19,700-crore bid for BPSL sometime in June on account of Covid, but the lenders rejected the demand. JSW was supposed to pay in March.

The corporate insolvency resolution process (CIRP) for both the cases has been running for more than three years now.

However, as it turns out, BPSL and Amtek are not the only cases to ask for relief.

Rajiv Chandak, partner, Deloitte India, said, “We are observing multiple situations where buyers are seeking relaxation in the payment schedule. In fact, in some situations, bidders are getting cold feet and are even looking to get out of the winning bid, as future revenue and earnings projections, on the basis of which the offer was made, are no more valid.”

Not just that, a lender said the worry was that many applicants were asking for a reduction in the bid amount. “As far as an extension in the payment schedule is concerned, the NCLT (National Company Law Tribunal) anyway is not hearing cases frequently, so automatically the time is getting extended,” the lender said.

At the end of April, the resolution applicant for Digjam, Finquest Financial Solution, filed an affidavit before the NCLT Ahmedabad for a revision/modification/relaxation in the resolution plan in respect of the timeframe for the payment to financial creditors, operational creditors, and other stakeholders due to financial difficulties arising out of the pandemic and consequent lockdowns. The NCLT found there was no material change to the plan except in the timeline and allowed it.

But such concessions are likely to be given on a case-by-case basis, as there is no provision in the Insolvency and Bankruptcy Code (IBC) to renegotiate the payment schedule, given that it is a time-bound procedure.

Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co, pointed out that if contracts and binding commitments in a resolution plan were frustrated on account of an impossibility or force majeure event, the only option that a resolution applicant had was to go back to the drawing board. 

“While this may work commercially, it would not provide relief to resolution applicants under the existing framework of the Code,” she added.

Suharsh Sinha, partner, AZB & Partners, explained that in any M&A deal, a force majeure clause was typically negotiated to deal with uncertainty between signing and closing. “But under the IBC, the CoC generally does not agree to a bidder, including a force majeure clause. In any event, once the NCLT approves the plan, there is no scope for renegotiation and it’s binding on all parties. The applicant will then have to go to the tribunal for relief but will need to count on support from the CoC,” he said.

According to Kumar Saurabh Singh, partner, Khaitan & Co, Covid is an unprecedented situation, and for borrowers who had to pay after March, there is material change in the legal and regulatory regime.