On June 8, the National Company Law Tribunal approved the resolution of the bankrupt Videocon Industries, paving the way for billionaire Anil Agarwal’s Twin Star Technologies to take over the consumer durables to the oil group.
Twin Star Technologies offered Rs 2,962 crore for 13 group firms of Videocon. These included Videocon Industries, Videocon Telecom, Evans Fraser & Co, Millennium Appliances India, Applicomp, Electroworld Digital Solutions, Techno Kart India, Techno Electronics, Century Appliances, Value Industries, PE Electronics, CE India and Sky Appliances.
The NCLT approving the proposal of Twin Star Technologies would mean another high profile insolvency case concluded. However, the offer of Rs 2,962 crore, when viewed against the admitted claims of Rs 64,838 crore was very meagre and lenders would have to take a haircut of over 95 per cent.
It was the smaller lenders like Bank of Maharashtra, IFCI, Morgan Securities, SIDBI and ABG Shipyard dissented, even as some of the top lenders voted in favour of the proposal.
The resolution has since been put on hold by the National Company Law Appellate Tribunal (NCLAT) after the dissenting creditors filed an appeal in July.
Adding a further twist, Venugopal Dhoot, the promoter of Videocon Industries, has also moved the NCLAT challenging the insolvency court’s order approving the bid of Twin Star Technologies. He had earlier offered to pay up for the withdrawal of insolvency proceedings, but his proposal clearly seemed to have been rejected by the committee of creditors.
Dhoot now wants the appellate court to set aside the NCLT order and wants the NCLAT to direct the lenders to consider the Rs 31,789 crore settlement plan submitted by him.
Dhoot’s contention is that the assets owned by Videocon Group, particularly oil and gas assets owned by Videocon Industries, were not included in the information memorandum and no valuation thereof had been considered.
Dhoot has invoked Section 12A of the Insolvency and Bankruptcy Code, which allows the Committee of Creditors (CoC) to withdraw an insolvency case and consider an offer made by the promoter. It can be approved by 90 per cent voting share of the CoC.
Dhoot in his appeal to NCLAT has requested that a fresh resolution plan should be considered with oil and consumer durable assets.
The Insolvency and Bankruptcy Code was passed so that there would be time-bound resolution of stressed assets. But, the Videocon resolution is a classic instance where while the case has been settled, the creditors are recovering only a tiny portion of their dues.
Legal experts agree that the Videocon resolution offer is low and needs to be relooked at.
“If the said accepted bid is barely perused, it can be analysed that the same is undervalued, therefore irrational of the creditors to accept it. The fair value of Dhoot’s Videocon according to the registered valuers is around Rs 4,000 crore. The CoC members, mainly banks are facing a 95 per cent haircut if Twin Star acquires Videocon per the NCLT order. Thereby, NCLAT’s stay on the acquisition of Videocon is a welcome move,” Sonam Chandwani, managing partner at KS Legal & Associates, told THE WEEK.
What’s worth noting is that even as the NCLT had approved Twin Star’s proposal, it had been critical of the deal.
“The successful resolution applicant is paying almost nothing and 99.28 per cent hair cut is provided for operational creditors (hair cut or tonsure, total shave),” were the strong words from the NCLT in the written verdict.
It had requested the committee of creditors and the resolution professional to increase the payout amount to the operational creditors.
The NCLT was also surprised that the resolution applicant had valued the assets and liabilities of all the 13 companies and arrived at almost the same value and so “doubt arises” on the confidential clause, it had said.
The Videocon case raises several questions: Why was a deal that offered so little value accepted by the committee of creditors (CoC)? Why was Dhoot's offer overlooked? The confidentiality issue also needs examining.
The NCLAT will certainly look at the entire case again, but whether it will rule against the NCLT verdict needs to be seen. The hearing in the NCLAT will be closely eyed for sure.
Even Dhoot may perhaps have to come up with an improved plan to get the CoC approval for a better deal, feels Chandwani.
Videocon’s insolvency case is far from over and Agarwal and his Twin Star Technologies will have to wait for some more time if at all they are to get their hands on a company that was once a strong homegrown player in the country’s consumer durables market.