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NCLAT declines to stay ArcelorMittal’s offer for Essar Steel bankruptcy resolution

ArcelorMittal said the company does not have any say on the redistribution of the receivables.

The National Company Law Appellate Tribunal (NCLAT) on Friday refused to stay the order of the Ahmedabad bench of the National Company Law Tribunal approving ArcelorMittal’s `42,000-crore resolution plan for Essar Steel, but sought a fresh plan for the distribution of bid amount between financial and operational creditors of the bankrupt firm.

Asking the committee of creditors (C0C) to bring a fresh distribution plan at the next date of hearing on March 18, the appellate tribunal said, “there cannot be any discrimination… all are equal….You cannot be a Shylock to have the full flesh”.

On Essar Steel’s directors complaint that they were never shown the resolution plan, the NCLAT said they should have pleaded this point before the resolution plan was approved.

“Your time has gone. You had to cry at that time. You haven’t filed any appeal. It’s a rotten case,” the two-member NCLAT bench, headed by its chairperson justice SJ Mukhopadhyay, said.

Making a suggestion, the NCLAT said all operational creditors below Rs 1 crore should get 100% of the dues and so should the employees of Essar Steel. Only 90% of Rs 42,000 crore should be allowed for financial creditors.

ArcelorMittal’s resolution plan involves financial creditors getting Rs 41,987 crore out of their total dues of Rs 49,395 crore. Operational creditors, under the plan, would get just Rs 214 crore against the outstanding of Rs 4,976 crore.
If the ArcelorMittal plan is implemented, Standard Chartered will only get Rs 60 crore against its claims of Rs 3,187 crore from Essar Steel.

The NCLAT was of the view that the CoC cannot reserve 92% of the bid amount for financial lenders and leave just 4% for operational creditors.

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Operational creditors, it felt, are the oppressed lot and cannot be handed out just 4% of their outstanding.

If CoC doesn’t act to clarify in favour of operational creditors, NCLAT will exercise powers available to it, the judges said.

The CoC, however, opposed the proposal to give 10% of the Rs 42,000-crore bid amount to operational creditors saying they had approved the ArcelorMittal’s bid for Essar Steel based on the money secured lenders are able to recover from the insolvency.

Without the recovery for secured lenders, the CoC wouldn’t have approved the plan, the counsel appearing for the committee said adding it cannot be a lottery system for operational creditors. Financial creditors would be left with Rs 37,800 crore if 10% is given to operational creditors.

As is known, Essar Steel directors had challenged NCLT’s approval of ArcelorMittal’s plan for the bankrupt company on the pretext that their offer of Rs 54,389 crore was superior as it clears 100% outstanding of both financial and operational creditors.

Standard Chartered had also moved the NCLAT against the plan as its counsel contended that the bank was being given only 1.7% of its total dues from Essar Steel while other financial creditors, forming part of the CoC, were getting over 85% of their dues.

On its part, ArcelorMittal said the company does not have any say on the redistribution of the receivables. It said that having spent Rs 7,500 crore already to clear dues for Uttam Galva and KSS Petron, it would now not raise its offer.

On Thursday, the NCLAT had told Essar Steel Asia Holdings (ESAH) that its `54,389-crore resolution plan would only be considered only if the entity cleared the Essar group’s entire bad debt which runs into `80,000-85,000 crore.

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Source: Financial Express