Bidders jittery over coronavirus impact on bankrupt firms, seek legal help

Seek legal advice, want force majeure clause included in new contracts

The bidders of bankrupt companies are going back to the drawing board on their offers submitted to the lenders and are seeking legal advice whether they can withdraw or modify them. The bidders say the Covid-19 pandemic has changed the business environment and they will now make lower offers.

As the contracts with banks did not have the force majeure clause so far, the bidders also want it to be included in the new contracts henceforth.  “Some of the ongoing cases like Lavasa Corporation, Dewan Housing, and Reliance Communications are still pending for resolution and we will see several bidders backing out or making lower offers,” said a banker involved in the Insolvency and Bankruptcy Code (IBC) process.

However, the cases that have already received the NCLT approval, for example the JSW’s acquisition of Bhushan Power, the bidders will not be able to re-negotiate.

Bidders said falling economic growth, a weak rupee coupled with lower customer demand will make it difficult for them to turn around companies. “All the projections will have to be remade. The bidders who have not won any mandate so far had a lucky escape.

”Due to Covid-19, a bidder said several steel plants taken over by new owners were now either shut down or were operating at a very low capacity.

“All the internal projections made by the bidders on revenues and profits have gone haywire and some of them will have to retrench people and cut salaries,” said former chief executive of a steel company.

“The Covid-19 pandemic will bring down the valuation of all assets that have not seen a resolution so far,” he said.

The pandemic has changed the business sentiments with several analysts expecting Indian economy to grow at a lower level.

Global bank UBS expects India's real GDP growth to slow sharply to 2-2.5 per cent in the June 2020 quarter, from 4 per cent on a year-on-year basis in the March-20 quarter. If the efforts are successful in getting the virus under control over the coming weeks, the recovery should begin to gather steam from the second half of current financial year but this projection depend on the efficacy of the policy stimulus in supporting economic activity, it said.

Bidders said there was ambiguity in the insolvency law about the force majeure and business disruption clause. “Unless some companies have included force majeure clause in their offers, the others will find it difficult to go back on their offers,” said head of an asset reconstruction company asking not to be quoted.

“But bidders have already indicated that they will not be able to stick to the offers made till date,” he added.According to IBBI data, since the coming into force of the insolvency law with effect from December 1, 2016, as many as 3,312 companies faced the proceedings till December 2019. Of these, 246 cases have been closed on appeal or review or settled while 135 have been withdrawn.

Close to 780 have ended in liquidation and 190 have ended in approval of resolution plans.About 1,961 cases are still under active negotiations.