The terms of the transaction documents for mergers and acquisitions are often dictated by the economics of investment and the bargaining position of the parties. The terms so contractually agreed upon must, however, always be within the operative legal framework. Liquidation Preference (“LP”) is a tool often used to embolden investors seeking security of their investment. LP is crucial, especially where the investors anticipate exit at a value lower than their initial investment.
The National Company Law Appellate Tribunal (“NCLAT”) vide its order dated 23.09.2019 passed in the matter ofVinayaka Exports and another Vs. M/s. Colorhome Developers Pvt. Ltd., overturned the decision of the National Company Law Tribunal, Chennai Bench (“NCLT”) dismissing an application filed by two financial creditors under Insolvency and Bankruptcy Code (“Code”) owing to the pendency of a civil suit and pre-existing dispute between the parties.
FACTS:
The enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) has been often cited as one of the key economic reform of the present government . Undoubtedly the new enactment resulted in large corporate entities queuing up to acquire distressed companies and their assets, put on block following initiation of IBC proceedings, thereby infusing efficiencies in the economy due to likely revivals of such companies .
INTRODUCTION
Background
On November 15, 2019, the Supreme Court (the “Court”) ruled on several contentious aspects of the Insolvency and Bankruptcy Code, 2016 (the “Code”) and put an end to the long-drawn-out litigation in the insolvency resolution process of one of India’s largest steel manufacturers, Essar Steel India Limited (“ESIL”). This update highlights the key aspects of the Court’s decision.
Background
This is in succession to our previous con-call held on August 9, 2019. The Supreme Court in its judgment of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta dated November 14, 2019 (“Judgment”) has set aside the decision of the National Company Law Appellate Tribunal (“NCLAT”).
INTRODUCTION
Various Indian judicial fora, including the Supreme Court, have affirmed that a creditor may proceed against a guarantor on failure of the principal debtor to repay a loan without first exhausting his remedies against the principal debtor.
NCLAT has held that a secured financial creditor while opting out of liquidation process is barred from selling secured assets to promoters or its related party or persons who are ineligible in terms of Section 29A of I&B Code.
Tribunal in SBI v. Anuj Bajpai observed that even if Section 52(4) is silent on sale of secured assets to one or other persons, the explanation in Section 35(1)(f) makes it clear that assets cannot be sold to those who are ineligible under Section 29A.
Introduction