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Wednesday, February 19, 2020

Claw back creditor payments post cut-off date: MCA, IL&FS to NCLAT

The clawback will be applicable to creditors of all IL&FS companies across the board, including those which may have been paid after a February 11, 2019 order of the NCLAT on the same, the MCA suggested.

Written by Aashish Aryan | New Delhi | Published: February 13, 2020 4:20:46 am
Corporate Affairs Ministry, Infrastructure Leasing & Financial Services, IL&FS, IL&FS debtm IL&FS case, IL&FS crisis National Company Law Appellate Tribunal set cut-off at Oct 15, 2018.

In a reversal of stance, the Ministry of Corporate Affairs (MCA) and the new board at Infrastructure Leasing & Financial Services (IL&FS) has proposed that any payments, whether principal or interest, made to the creditors of IL&FS after the cut-off date of October 15, 2018, be clawed back from them.

The MCA and the new IL&FS board have suggested that October 15, 2018 be considered the cut-off as the National Company

Law Appellate Tribunal (NCLAT) had on that date imposed a blanket moratorium on payments to any creditors of IL&FS.

“Each such payment shall be made to a creditor in respect of the admitted claim of the relevant creditor as of the cut-off date, that is October 15, 2018, and as admitted by the claims management consultant. It shall be adjusted for any amounts which have been set off or appropriated by the relevant creditor in breach of the interim order passed by the NCLAT on October 15,” the MCA has said in its affidavit to the NCLAT.

The proposal is likely to impact nearly 155 companies, including 22 ‘green’ category companies that were, on pleas moved by MCA and new IL&FS board, allowed to service their debt obligations by the NCLAT on February 11, 2019.

In its February 11, 2019 order, the NCLAT ruled that 133 IL&FS group companies, which were incorporated outside India, would be exempt from an October 15, 2018 order of the appellate tribunal in which it had imposed a moratorium on any payments from IL&FS or its group companies.

The MCA and new IL&FS board had then submitted a list of 22 ‘green’ companies and requested that these should also be allowed to service their debt obligations, which, too, was allowed by the NCLAT.

The MCA and the new IL&FS board’s submissions on clawing back payments made to creditors are part of the new affidavit. In its latest affidavit, the MCA has proposed that from the monies being recovered, the first payments should be done to all financial and transactional advisors, legal counsels, resolution consultants, and independent valuers. Along with this, the money should also be used to cover the costs for advertisements, audit, and meetings, the MCA has proposed.

For other creditors, whether senior secured, secured, or unsecured, all payments should be done only till October 15, 2018, and, thereafter, no payment requests should be entertained, the MCA has said.

The new board, the MCA has said, has also proposed that while 55 companies in the ‘green’ category could be released from the interim injunction put in place by the NCLAT on October 15, 2018, the time period for resolution for about 105 other companies should be extended further by at least 270 days from whenever the new resolution plan is approved.

To simplify the resolution process of IL&FS and its 348 subsidiaries, the new board of the company had classified all the companies into three groups — green, amber, and red — based on their capability to service debt obligations.

At the time of classification, companies that could service their debt obligations to both secured and unsecured creditors were placed in the ‘green’ category, while those which could service their debt only to the secured or senior secured creditors were placed in the ‘amber’ category. The group companies of IL&FS that were in no position to service their debt to either secured or unsecured creditors were placed in the ‘red’ category.

As reported by The Indian Express, in the latest affidavit, the MCA has said the Department of Economic Affairs (DEA) had then warned about the risk of redemption on all asset management companies (AMCs) that had exposure of Rs 2,800 crore or more to bonds of IL&FS, which could subsequently force these AMCs to sell government securities.

In addition, the DEA had also warned that the licenses of almost 1,500 non-banking financial companies could be cancelled as they did not have adequate capital. Furthermore, mutual funds, which were the main buyers of corporate funds had completely stopped buying, the DEA had said in its note.

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