Essar Steel insolvency case: Crisis-hit company's promoters will have to pay about Rs 8,000 cr as banks set to recover claims

  • The resolution of Essar Steel can be marked as a landmark in the 3-year-old Insolvency and Bankruptcy Code (IBC)

  • A major roadblock in the resolution was removed by the Supreme Court on 15 November as it set aside the NCLAT ruling that provided for equal distribution of proceeds between financial and operational creditors

  • The Essar case, which was among the first 12 cases to be referred by the Reserve Bank of India (RBI) for resolution, faced several hurdles as its promoter Prashant Ruia also tried to bid for the company and moved the appellate tribunal for rejection of the ArcelorMittal's Rs 42,000 crore bid

Though a large bulk of the money that the bankrupt Essar Steel owes its lenders have been paid off by ArcelorMittal, run by billionaire Laxmi Mittal, around Rs 8,000 crore will have to be paid by the promoters Prashant Ruia and Ravi Ruia. This is because the promoters of Essar are understood to have issued personal guarantees for bank loans to the debt-ridden firm, according to a report in The Times of India.

In March this year, Essar Steel was auctioned under the new Insolvency and Bankruptcy Code (IBC) to recover Rs 54,547 crore of unpaid dues of financial lenders and operational creditors.

Banks are set to recover over 90 percent of their claims against Essar Steel, amounting to over Rs 40,000 crore—the single biggest recovery under IBC for banks so far, according to media reports. The operational creditors are set to get Rs 196 crore proposed by ArcelorMittal plus another Rs 1,000 crore later allowed by the creditors' committee, taking the total repayment to Rs 1,196 crore, a CNBC-TV18 report.

 Essar Steel insolvency case: Crisis-hit companys promoters will have to pay about Rs 8,000 cr as banks set to recover claims

Representational image. Reuters

"Payment from ArcelorMittal has started flowing and entire payment is expected to be cleared in a day or two," banking sources told PTI.

Another source privy to the development said ArcelorMittal has arranged the entire fund and is likely to transfer the amount by Monday (16 December), the report said

"ArcelorMittal has arranged the entire amount of Rs 42,000 crore which is likely to be transferred to State Bank of India, the lead banker to take control of Essar Steel under the Insolvency and Bankruptcy Code," one of the sources said.

When contacted, ArcelorMittal refused to comment on the issue, news reports said.

The State Bank of India (SBI), has settled its dues of other lenders as it received Rs 40,000 crore on Friday from ArcelorMittal, which is going to take over the company bringing to an end to the much-prolonged resolution process, according to an IANS report.

The SBI may settle the dues of all the other lenders on Monday (today).

The development followed the tabling of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, in the Lok Sabha on Thursday, which also provides for protection of buyers from criminal proceedings against previous promoters of the bankrupt firm.

ArcelorMittal had kept the promised Rs 42,000 crore in an escrow account, but didn't release it immediately after the Supreme Court's order in the case last month, as the company wanted immunity for Essar Steel's assets from probe against its previous promoters.

As per the plans approved by the committee of creditors (CoC), upheld by the Supreme Court in its 15 November ruling, SBI will receive the largest chunk at about Rs 12,161 crore, the sources said. Besides, Canara Bank will get Rs 3,493 crore and ICICI Bank Rs 2,110 crore, the sources said, according to a PTI report.

As per the resolution proposal, banks would recover over 90 percent of their claims against Essar Steel, amounting to over 40,000 crore. The operational creditors would initially get Rs 196 crore, and another Rs 1,000 crore later, allowed by the CoC, taking the total repayment to Rs 1,196 crore.

The resolution of Essar Steel can be marked as a landmark in the 3-year-old Insolvency and Bankruptcy Code (IBC). A major roadblock in the resolution was removed by the Supreme Court on 15 November as it set aside the National Company Law Appellate Tribunal's (NCLAT) ruling that provided for equal distribution of proceeds between financial and operational creditors.

The Essar case, which was among the first 12 cases to be referred by the Reserve Bank of India (RBI) for resolution, faced several hurdles as its promoter Prashant Ruia also tried to bid for the company and moved the appellate tribunal for rejection of the ArcelorMittal's Rs 42,000 crore bid.

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Updated Date: Dec 16, 2019 14:29:55 IST