In the latest twist in the bankruptcy case of debt-laden Essar Steel, the flagship owners of the company, Ruia’s have made a last-minute offer of INR 54,389 crore to the lenders for settling all claims and allowing the company to exit the bankruptcy process under Section 12A of IBC (Insolvency and Bankruptcy Code).
The development has come after the creditors have voted in favour of Arcelor Mittal’s INR 42,000 crore bid for the company this week. Now with Ruia’s new offer, the case will once again move to the Supreme Court, delaying the sale process of Essar Steel and adding to the pressure on Arcelor Mittal to further increase its bid.
Arcelor Mittal and Ruias take in the case
Out of the total offer, the Ruias have offered upfront cash payment of INR 47,507 crore to all creditors, including INR 45,559 crore to the secured financial creditors.
Section 12A states a bankruptcy application can be withdrawn by the party that has filed (SBI in case of Essar Steel) provided 90% lenders approve it.
However, Arcelor Mittal is of the opinion that IBC’s Section 12A does not apply to the resolution process of Essar Steel. This is because Section 12A clearly states that any application to withdraw must be submitted prior to the issuance of the invitation for expressions of interest and must be accompanied by a bank guarantee for the specified amounts. Also, Arcelor sources added that if the Ruias can afford to pay now they should have paid before. This desperate last attempt only serves to clearly demonstrate they are wilful defaulters.
RBI rules state that if a borrower has the ability to pay and does not pay then it can be classified as a wilful defaulter.
On the other hand, Ruias contend that the amended version came in June this year and the expression of interest for Essar Steel was issued in October 2017 and that ArcelorMittal was misrepresenting the facts by saying it had paid the entire overdue of all related corporate debtors.|
Essar Group top management has stated in an interview that Essar Steel got into difficulty because of the external factors. In fact, even after the onset of the insolvency resolution process, the shareholders of Essar Steel has made offers to settle the debt of the company but lenders did not accept them.
Lenders view
On the lenders’ side, Bankers appeared divided in their interpretation of the latest developments. Some argued that fresh offers should not be accepted once the entire insolvency process has been completed whereas others are of the opinion that the insolvency process is not yet completed as Arcelor Mittal is only declared and the preferred bidder and not letter of intent has been issued yet.
Essar Steel is a flagship company of Ruias family which owed INR 49,000 crore to the lenders and was referred to IBC in June last year. . The company has an integrated steel plant with a capacity of 10 MnT in Hazira, Gujarat.
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