Background

• Fenace Auto Limited is an automotive component manufacturing company making cast iron components and machining them. The company had borrowings of approximately Rs. 483 crores from banks and had about Rs. 25 crores payable to operational creditors.
• In November, 2017, an application was filed before the Hon’ble National Company Law Tribunal (Delhi bench) by an Operational Creditor of Fenace Auto Ltd. under Section 9 of the Insolvency & Bankruptcy Code, 2016.
• On 15.11.2017, NCLT admitted the application, a moratorium was declared and the board of the company was suspended by virtue of the admission/ order.
• The Hon’ble NCLT vide its order dated 08.12.2017 (received on 12.12.2017) appointed Mr. Punkaj Jain as Interim Resolution Professional (IRP).

Resolution Process

• Public Announcement was made in English & Hindi in the Pioneer on 16.12.2017, inviting the claims from the Creditors of the Corporate Debtor which were received and verified in accordance with the applicable law.
• Upon verification and admission of claims a Committee of Creditors (CoC) was formed comprising of 4 members (Financial Creditors) i.e. Allahabad Bank being the lead banker, Bank of Baroda, South Indian Bank & Corporation Bank.
• The Hon’ble NCLT vide its order dated 22.01.2018 confirmed the appointment of IRP as Resolution Professional (RP).
• The plant of the Corporate Debtor was shut down since July 2017, the bank accounts were empty, the employees & security agency were unpaid for several months and sizable assets were in place (book value almost 500 Crores). Without liquid funds it was a difficult situation for the Resolution Professional and the CoC to plan the way forward for carrying out the Corporate Insolvency Resolution Process.
• In order to maximize value and potential realization for the stakeholders and also safeguard the company’s assets, the RP presented a proposal to revive the operations of the company before the CoC for which interim finance was required to be raised. The CoC unanimously approved the RP’s proposal for raising interim finance to revive the company’s operations.
• The RP approached several potential lenders for raising interim finance but due to lack of clarity in law regarding security of their loan, the potential lenders approached declined the proposal.
• The RP recovered some funds from one of the company debtors and made payments to the minimal staff and security agency (on a pro rata basis) to safeguard the company assets and keep the CIRP process running.
• In order to meet the CIRP cost and the operating expenses of the company, the RP proposed that the metal scrap lying at the factory site be sold and funds recovered. The RP took approval from the CoC and sold the metal scrap from which funds were recovered to carry out the CIRP process.
• The RP not only took care of the operational expenses of the company but also paid the salaries of the company employees due to them since the initiation of CIRP, had the plant and machinery insured and made the necessary payments required to be made in the course of CIRP.
• The RP made Public Announcement Inviting Expression of Interest (EOI) for investment in the company. In addition to the public announcement, the RP reached out to potential investors through his network of associated professionals and received EOIs from 5 potential Resolution Applicants.
• The RP supplied the requisite data to the potential resolution applicants, assisted them by arranging site visits and discussions with the technical/ production staff to address their queries/ concerns and provide them with all the necessary data required by them for planning the resolution.
• The RP received Resolution Plans from 2 resolution applicants. Negotiations were carried out and the with a 100% vote, the CoC declared Badve Engineering Limited (BEL) as the successful resolution applicant.
• The approved Resolution Plan was submitted before the Hon’ble NCLT, New Delhi Bench on 09.08.2018 for approval and vide its order dated 17.10.2018 (received on 01.11.2018) the Hon’ble NCLT approved the Resolution Plan realizing in excess of 26% for stakeholders.

Post approval by NCLT

• As per the Resolution Plan BEL had 90 days to make all payments and a monitoring committee was formed with the RP, one representative each of the Financial Creditors and BEL to manage the affairs during the 90-day period.
• During the 90-day period, some operational creditors approached the Hon’ble National Company Law Appellate Tribunal (NCLAT) challenging the resolution plan on various grounds which led to delay in disbursement to the financial creditors.
• In the course of a hearing before the Hon’ble NCLAT, BEL furnished an undertaking to the effect that all operational creditors would be paid at parity with the financial creditors. On the basis of the undertaking, all operational and financial creditors were made payments on the 12th March, 2019 and the resolution completed.
• The Hon’ble NCLAT took note of things and vide its order dated 28.03.2019 disposed of the appeals filed by the Operational Creditors.

Resolution professional was represented by Mr. Hitesh Sachar, Partner, Canpisce & Co. in the matter.