How Asian Colour Coated Ispat resolution plan was ‘revised’ in favour of secured financial creditors

Is there a ‘foul play’ in the manner in which the resolution plan submitted by JSW Steel Coated Products Ltd for the resolution of Asian Colour Coated Ispat Ltd (ACCIL) insolvency case was changed in favour of secured financial creditors at the cost on other creditors?

JSW Steel Coated Products Ltd recently acquired Asian Colour Coated Ispat Ltd (ACCIL) through the resolution proceeding under the Insolvency and Bankruptcy Code (IBC) for Rs 1,550 crore against total admitted creditors’ claims of Rs 7,123 crore.

As per the resolution plan approved by the Committee of Creditors (CoC) as well as by the National Company Law Tribunal, the secured creditors received Rs 1,550 crore out of their total admitted claims of Rs 4,864 crore, taking a haircut of 69%. The unsecured creditors received only Rs 25 crore against total dues of Rs 1,702 crore. Operational creditors (government, employees and other vendors) received only Rs 25 crore against their admitted claims dues Rs 556 crore.

However, the final resolution plan that was approved by the CoC and NCLT is not what it was initially submitted by the resolution applicant on the last day of the submission on 8 March 2019.

JSW Steel Coated Products has initially agreed to pay Rs 1,200 crore as per the plan submitted earlier. As per the earlier plan, secured financial creditors were to receive 17.1%, or Rs 832 crore, of their total claims, unsecured creditors were to receive Rs 291 crore, or 17.1% of their total claims and operational creditors were to get Rs 81 crore of their total dues of Rs 556 crore.

The CoC had a discussion on 16 March on the resolution plan submitted on 8 March 2019. After that the resolution applicant submitted an unsigned resolution plan on 6^th April, and it was decided to put the plan for voting from 12 April to 16 April 2019.

But since the resolution plan was unsigned, resolution professional Kuldip Kumar Bassi  on 11 April sent an email asking JSW Steel Coated Products to submit a signed resolution plan. After that, the date for voting on the plan was deferred.

However, on 24^th April when the resolution applicant finally submitted a signed copy of the plan, it had been revised. Not just the resolution amount has been increased from Rs 1,200 crore to 1,550 crore, the pattern of distribution was also changed much in favour of the secured creditors.

Now, the secured creditor was to get 31% of the outstanding amount against 17.1% as per the earlier submitted plan, secured creditors were to receive a paltry 1.47% instead of 17.1% under the earlier plan and operational creditor were to get only 4.5% of their total admitted claims against the earlier plan of 14.57%.

What is more intriguing is the fact that when the dissenting unsecured creditors – Corporation Bank of India, Union Bank of India, IDBI Bank, Commercial Bank of Dubai, Indian Overseas Bank and Karur Vysya Bank — who together had a voting share of 8.66%, filed an application against the CoC’s approval to the vastly revised plan, the CoC defended itself by saying that while they requested the resolution applicant to increase the amount from Rs 1,200 crore to Rs 1,550 crore, they did not ask the resolution applicant to change the distribution pattern. The proportion of distribution of the resolution amount was, apparently, a decision of the resolution applicant and the CoC has not role to play in it.

The change in the plan was, nonetheless, approved by the NCLT saying that it cannot pass an order going against the ‘commercial wisdom’ of the CoC.

Change in plan: How the resolution plan was revised in favour of secured creditors