The creditors had put forward claims to the tune of Rs 359 crore before the IRP during the resolution process. Following negotiations, the WBECSC and the creditors agreed to a one-time settlement of Rs 185 crore. The public sector banks took a haircut, forgoing the interest accruing to them. The state-enterprise had taken a loan from a consortium of banks in 2004-05, but only made part payment of the dues. A questionnaire sent to the managing director of the WBECSC in this regard remained unanswered.
“The case would be seen as an opening of a remedy with various operational creditors as well as financial creditor who are dealing with any state-owned companies,” said Anil Goel, the court-appointed IRP and chairman, AAA Insolvency Professionals. Suppliers to government-owned discoms in the wind and hydro-power sectors, who have notched up huge dues, are said to be keenly following this case, say experts.
There were several peculiar challenges in dealing with a state-owned enterprise while arriving at a resolution between the corporate debtor and the consortium of creditors. The IRP found it difficult to arrive at a liquidation value of the corporate debtor as the financial accounts were not audited for last four years. “The value of current assets, including stock and receivable, was not available. There was no other option of resolution other than one-time settlement with the banks,” says Goel.
When the IRP, under IBC, decided to freeze and take control of the bank accounts of the enterprise, this lead to a payment crisis, affecting paddy procurement from farmers. As a way out, the IRP had to delegate his power to operate the bank accounts to the officers of the WBECSC as its authorised signatories. “We took this decision because this was a state government-owned company and the system of monitoring of funds was in existence,” said Goel.
A key take away, say insolvency professionals, while dealing with government-owned enterprises is to work as per the procedures followed by these companies.
“In practice it is going to be challenging to complete resolution process within the time frame provided as government companies
would require approvals at multiple levels,” says Sumant Batra, managing partner and head, insolvency and corporate law practice, Kesar Dass B & Associates. As per the Code, any insolvency resolution proceedings have to be completed within 180 days that is extendable to 270 days.
Further, there is lack of clarity on how the Code would operate in case a company has been identified for disinvestment. “The central government can exclude such companies
from the preview of IBC,” suggests Batra. Some experts feel as debt-laden state-owned companies start facing the heat of the new insolvency resolution proceedings, governments would have to support these businesses and arrange for funds to avoid liquidation.