Reliance Capital creditors decide ‘equitable’ treatment to lenders; plan payouts in proportion to dues
In a significant move, the Committee of Creditors (CoC) of Reliance Capital has voted to make payment to all the lenders, in proportion to their admitted claims, based on the final ‘Plan Value’ regardless of their assent or dissent with the decision. The Plan Value of the resolution plan by Hinduja Group-backed IIHL is nearly Rs 10,000 crores. IIHL was the sole bidder in the second round of auction conducted by the Reliance Capital lenders.
The move signifies a significant shift in the approach to the distribution of the resolution Plan Value, emphasizing fairness and equitable treatment among lenders. Through this, the CoC aims to ensure a more transparent and unbiased process, fostering trust and confidence in the overall plan.
In other words, the plan value will be the distribution value for all the lenders whether they have assented or dissented on the resolution plan. Generally, the dissenters are paid based on the liquidation value.
With this development, the lenders of Reliance Capital are unlikely to have any inter-creditor dispute. This move by the CoC has been hailed by the banks and other lenders as the pioneering step in the IBC.
The distribution of funds under the resolution plan for priority secured creditors, secured creditors, unsecured creditors, and operational creditors has also been approved by 99% votes. The final resolution plan will be put to vote in June 2023.
The deadline to submit the resolution plan to NCLT is 15 July and the COC is confident of meeting the deadline. Hinduja Group firm IIHL emerged as the highest bidder with Rs 9,650 crore bid in the second round of the auction in April.
Torrent Investments fought tooth and nail against the lenders holding the second round of auctions.Both Torrent Group and Hinduja had revised their bid price after the first round of e-auction on 21 December 2022. Torrent group revised its bid and was offering Rs 8,640 crores as upfront cash. Earlier, the company was offering Rs 3,750 crores as upfront cash and balance in deferred payment.
Hinduja group revised its bid price for Reliance Capital to Rs 9,500 crore on 23rd December 2022, two days after the first round of the e-auction. Hindujas had earlier quoted Rs Rs 8,110 crore in the e-auction. As per Hinduja’s revised bid, they agreed to pay Rs 8,800 crore upfront.
However, the CoC decided to hold a second round of challenge mechanism as the bids submitted by Torrent and IIHL were far below the liquidation value and fair value fixed by the independent valuers. The Liquidation Value of Reliance Capital is pegged at around Rs 13,000 crores and Fair Value is Rs 17,000 crores.
Torrent had challenged IIHL’s revised bid and the second round of auction in the NCLT.
NCLT had ruled in favour of Torrent, but NCLAT overturned NCLT ruling and allowed the lenders of Reliance Capital to go ahead with the second round of auction. Torrent approached SC to seek stay on the NCLAT order, but the apex court did not offer any relief to the company.
