Operational creditors suffer 58% haircut

Mumbai: Haircuts for operational creditors have been in line with that for financial creditors under the bankruptcy law.

According to a study by rating agency ICRA Ltd, the operational creditors have recovered 42 per cent of their total admitted claims from 92 debt-ridden companies under the bankruptcy law as of March 31, 2019. The operational creditors took a haircut of 58 per cent on the total claims of around Rs 8,140 crore. In comparison, financial creditors realised 44 per cent of their total claims worth Rs 1.60 lakh crore for the 92 corporate insolvency resolution processes that yielded a resolution plan in 2018-19.

Abhishek Dafria, Vice President and Co-Head, Corporate Ratings, ICRA said, "We believe that the reason the operational creditors have not suffered significantly higher haircuts is on account of the criticality of certain creditors to the core operations of the corporate debtors. As a result, the resolution applicants have ensured that relationships with such creditors are maintained."

Among certain large size corporates, realisation by the operational creditors has been much higher than the average realisations such as that seen in the resolutions of Bhushan Steel (81 per cent of claims received by operational creditors) and Binani Cement (86 per cent). At present, the extent of funds to be paid out to the operational creditors as part of the resolution plan of Essar Steel Limited is under dispute, highlighting the difficulty in satisfying all the parties especially when the operational creditors do not have a say in the selection of the resolution plan said Dafria. Since operational creditors are not a part of the committee of creditors - in-charge of evaluating resolution plans — it's the responsibility of the financial creditors to ensure that the operational creditors receive a fair share of their claims, Dafria said. "A short-sighted vision of the financial creditors to enhance their own realisation from the resolution applicant could impact the sustainability of the businesses of the operational creditors, which would thus have a bearing on the going concern status of the corporate debtor itself in the long run."

One of the biggest successes of the introduction of the IBC has been the power given to the operational creditors to take a defaulting corporate debtor to the National Company Law Tribunal (NCLT). The operational creditors have been using this power proactively and effectively. Of the 1,858 corporate debtors referred to the NCLT upto March 31, 2019, 920 cases (i.e. 49 per cent) have been referred by the operational creditors said ICRA. Despite the delays being witnessed in the application being accepted by the NCLT and then the delays in the CIRP itself, the operational creditors have continued to show confidence in the process and remained at the forefront of pushing corporate debtors to the NCLT.