The Videocon Insolvency Resolution Process: Is Reading Between The Lines Warranted?

• Published date: 05 August 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy
• Law Firm: S&R Associates
• Author: Mr Rajat Sethi

By an order dated July 19, 2021, the National Company Law Appellate Tribunal (the "NCLAT") stayed the operation of the order of the National Company Law Tribunal (the "NCLT") which had approved a resolution plan in relation to the Videocon group. It has been reported that Twin Star Technologies ("Twin Star"), the successful resolution applicant, is considering an appeal against the NCLAT's stay order to the Supreme Court.

In staying the operation of the NCLT's order approving a resolution plan proposed by Twin Star, the NCLAT appears to have been influenced by the observations of the NCLT on two points, a substantial haircut and a breach of confidentiality.

Apart from these two points, this note considers a possible shortcoming in the NCLT order in relation to treatment of dissenting creditors.

Is reading between the lines warranted?

The Haircut

The NCLT notes that the admitted claims in the matter for INR 64,838 crores far exceeded the amount offered in the resolution plan proposed by Twin Star of INR 2,962 crores. The resolution plan therefore provided for payment of 4.15% of the total outstanding claim amount - a 'haircut' of 95.85%.

A breach of confidentiality?

The NCLT further notes that the amount offered by Twin Star in the resolution plan is only marginally above the liquidation value of the stressed asset (estimated at INR 2,568 crores). Based on this, the NCLT while approving Twin Star's plan expressed a doubt whether the confidentiality clause had been breached, i.e., a question was raised whether the calculation of liquidation value prepared for the benefit of the committee of creditors had become available to bidders before bids were submitted? The NCLT in its order approving Twin Star's resolution plan asked the Insolvency and Bankruptcy Board of India to examine this issue and to consider whether further safeguards are needed to ensure confidentiality. Newspaper reports indicate that pursuant to the NCLT's order, the Government has directed the Serious Fraud Investigation Office to conduct a probe.

The suggestion implicit in both of the NCLT's points is that there may have been some impropriety in the insolvency resolution process and a higher value could perhaps have been derived but for such impropriety.

There does not appear to be any material on record to substantiate such a suggestion. On the contrary, it is a matter of record that 11 applicants submitted resolution plans for the Videocon group. Of these, the resolution professional...