The National Company Law Tribunal (NCLT) has approved a repayment plan for businessman Subhash Chandra, which covers about Rs 6.5 crore in which creditors are to be paid back to them for admitted claims of Rs 22,006.57 crore.
The decision means creditors will take a 99.97 percent haircut on the total amount they claimed. In short, lenders will recover only a very small portion of the money owed to them under the approved plan.
The case relates to Chandra’s personal insolvency proceedings under the Insolvency and Bankruptcy Code (IBC). The tribunal approved the repayment plan after some creditors objected to the very low recovery amount.
The huge gap between the total claims and the approved payout has attracted attention. While creditors had claimed more than Rs 22,000 crore, the approved plan offers only a few crore rupees for settlement.
NCLT approves Rs 6.5 crore Repayment Plan
The NCLT approved the repayment plan after a split decision from the original two-member bench. The matter then went before a third member who considered the case and approved the proposed plan.
Under the approved arrangement, around Rs 6.25 crore will go to creditors and about Rs 25 lakh to the insolvency process costs. That brings the total payout to about Rs 6.5 crore.
Some lenders opposed the proposal and said it was much too low compared to their claims.
LIC Housing Finance, for example, had an admitted claim of around Rs 1,322.39 crore. But the amount proposed for repayment to the company was only around Rs 38.09 lakh.
In addition, the proposed repayment was not worth the money, and creditors were also not convinced.
More importantly, the tribunal discussed several factors in the planning process. One of the most important factors was the creditors’ vote.
Creditors representing approximately 80.81% of the voting share supported the repayment plan. Those who opposed it represented less than 20% of the voting share.
The NCLT also looked at the value of Chandra's personal assets. Based on the valuation made during the proceedings, his personal estate was much less than the total claims against him.
This was key to the tribunal’s decision because the insolvency process has been designed to give creditors the best possible recovery based on the assets available.
The tribunal also noted it could not simply replace the commercial decision by the creditors with its own. It was to assess whether the resolution plan was in accordance with the insolvency law.
What Does The 99.97% Haircut Mean?
A haircut in an insolvency case is the amount of money creditors agree to give up when they accept a settlement that is lower than the original debt.
In Subhash Chandra's case, creditors had admitted claims worth around Rs 22,006.57 crore. The approved plan will provide around Rs 6.5 crore.
This means creditors will recover only around 0.03% of the admitted claims through the plan, while around 99.97% of the claimed amount will not be recovered.
The decision also illustrates how insolvency proceedings can lead to a major difference between the original amount owed and the amount ultimately recovered by lenders.
The case involves Chandra's personal insolvency proceedings after he had provided a personal guarantee for a loan connected with Vivek Infracon. The loan default eventually resulted in insolvency proceedings against him.
Subhash Chandra is best known as the founder of Essel Group and for his association with Zee. His business empire has been hurting for some time now and so his insolvency case is of great significance in the corporate debt tale.
The NCLT’s approval does not mean that all the original claims disappear without a legal process. Instead, the approved repayment plan becomes binding on the creditors under the insolvency framework.
This means creditors who oppose the plan will also have to abide by the approved arrangement.
The case has also been criticized because of the very high haircut. Some creditors have questioned whether creditors should accept such a small recovery when the admitted claims run into thousands of crores.
However, the tribunal took into account the available assets, the creditors’ vote and the insolvency law when approving the plan.
The next step will be executing the repayment plan and distributing the amount according to its terms.
For creditors, the outcome is a very small recovery compared with their original claims. For Chandra, the decision by NCLT is an important step in his insolvency proceedings.
The case also shows how India’s insolvency framework deals with situations where a person’s liabilities are much higher than the value of their available assets.
With the repayment plan now approved, the focus will turn to implementation of the repayment plan and sharing of the approved amount with creditors.
The Rs 22,006.57 crore claim versus Rs 6.5 crore payout remains the most striking part of the case, resulting in a 99.97% haircut for creditors.
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