When Committee of Creditors had a change of heart

In IBC, they say you cannot question the commercial wisdom of the Committee of Creditors (CoC). While not everyone concurs with the ‘rule’, very rarely has anyone, even the dissenting financial creditors of the CoC, been able to force a change in the decision of CoC once it has put its stamp in any resolution plan.

But once in a while, the committee of creditors itself cast aspersion on the resolution plan that they approved.

Take for example the case of Twin Star Technologies resolution plan for Videocon. Out of total claim amount of Rupees 71,433.75 Crore, claims admitted are for Rs 64,838.63 Cores and the plan is approved for an amount of only Rs 2962.02 Crore which is only 4.15% of the total outstanding claim amount and the total hair cut to all the creditors is 95.85%.

While both the Committee of Creditors and subsequently the National Company Law Tribunal (NCLT) approved the resolution plan, it not only caused public outrage but also made the NCLT suggests some changes in the resolution plan.

Appeals were filed against the NCLT order 8 June 2021 and NCLAT stayed the order of NCLT in July 2021.

These made the assenting financial creditors constituting 94.98% of the voting rights to reconsider the resolution plan. The assenting financial creditors filed an affidavit in National Company Law Appellate Tribunal (NCLAT) stating that “they feel duty bound to reconsider their decision in larger public interest resulting from unprecedent haircut of 95% & observations of the Adjudicating Authority.”

They submitted in the affidavit: “Considering the observations of the Adjudicating Authority and the submissions made by the Senior Counsel for Appellants in both these Appeals and the grounds raised in these Appeals, and considering the exceptional facts of present matter the Impugned Order is stayed till the next date and status quo ante as before passing of the Impugned Order is directed to be maintained. Resolution Professional will continue to manage the Corporate Debtors as per provisions of IBC till the next date”.

They also said in their submission before the NCLAT that the Successful Resolution Applicant is paying almost nothing and 99.28% hair cut is provided for Operational Creditors. During the Course of hearing it was also submitted that voluminous number of Operational Creditors are also MSME and if they were paid only 0.72 % of their admitted claim amount, in the near future many of these Operational Creditors may have to face Insolvency Proceedings which may be inevitable, forcing the Adjudicating Authority to request both CoC and the Successful Resolution Applicant to increase the pay-out amount to these Operational Creditors especially MSMEs.

The assenting financial creditors (AFC) accepted that proceedings with the implementation of the Resolution Plan is not feasible in the light of above stated positions. It even argued that no law debars review of decision in the executive branch as also in commercial company law matters to review its own decisions if at a later stage reveals that either in the interest of the organization or in the public interest or observations of the concerned Adjudicating Authority/Appellate Authority. AFC are of the view that power to approve includes power to vary, modify and reconsider.

Following multiple appeals by dissenting financial creditors and of course considering the AFC’s apparent change of heart, the NCLAT has stayed the resolution plan submitted by Twin Star Technologies and sent the resolution plan back to the Committee of Creditors to reconsider the same.

Also See: What made NCLAT set aside Twin Star Technologies resolution plan for Videocon group of companies