The IBC process should not be derailed by past promoters’ sins – The Hindu BusinessLine

The National Company Law Appellate Tribunal (NCLAT) must be commended for taking a stand against the Enforcement Directorate’s (ED) attempts to attach properties of Bhushan Power and Steel Ltd as part of investigations into alleged loan fraud and money laundering by the company’s former promoter Sanjay Singhal. The tribunal has prevented the investigating agency from derailing the Insolvency and Bankruptcy Code (IBC) and has set a good precedent for other stressed assets under the debt resolution process, where the former promoters are being investigated for alleged financial irregularities. In this case, JSW Steel emerged as the highest bidder with a commitment to pay ₹19,350 crore to financial creditors against an outstanding debt of ₹47,158 crore. Another ₹350 crore would be paid to operational creditors against claims of ₹733 crore. In effect, banks would get 41 per cent of their outstanding dues but nearly double the liquidation value of around ₹9,500 crore. This plan was approved by the National Company Law Tribunal in September. Simultaneously, the ED attached immovable properties worth ₹4,025 crore of BPSL in a money-laundering case alleging that the company and its former promoter siphoned off funds obtained as loans from various banks and financial institutions. While the ED has the right to pursue investigations against individuals, its action to attach properties that were already sold to the new buyer under the IBC rules completely undermines the entire insolvency process. There are several other companies, including Jet Airways and IL&FS, where individuals who were owning or managing these entities are being investigated for alleged irregularities. The fear of similar action on these companies by investigating agencies at a future date will drive away potential buyers from submitting a bid. It also leaves room for rival players to block winning bidders’ efforts to acquire a strategic asset by manipulating the system.

via The IBC process should not be derailed by past promoters’ sins – The Hindu BusinessLine