The way has been cleared for ArcelorMittal to take over Essar Steel following an order by the Supreme Court setting aside the order of the National Company Law Appellate Tribunal, NCLAT. The apex court has said the NCLAT must not interfere in the decision of the committee of creditors (CoC) in the insolvency case pending with the NCLT. The order from the NCLAT had said that the operational creditors should be treated on par with the financial creditors.
If you are not familiar, in a typical insolvency situation where a company’s assets are sold by the creditors to the highest bidder and the proceedings are distributed, the financial creditors, like banks and other lenders, will get a larger portion. The operational creditors, largely suppliers of raw materials and other supplies and service providers, will have to settle for a smaller amount proportionate to the amount owed to them.
In this Essar Steel case for example, the financial creditors were hoping to recover 89.8% of their dues when ArcelorMittal took over. NCLAT’s order brought this down to 60.7% on par with the operational creditors. This prompted them to go to the SC.
It is the Ahmedabad branch of the National Company Law Tribunal which is handling the insolvency case of Essar Steel and ArcelorMittal, the steel giant with presence in multiple countries, came forward to take over the bankrupt company promoted by the Ruias. The company had accumulated debts to the tune of ₹69,192 crore. There are more operational creditors making claims to the NCLT for their dues.
There were specific issues too, in the way some of the creditors were treated at the NCLT by the CoC. This was pointed out in the NCLAT earlier by one of the affected financial creditors, Standard Chartered PLC. Standard Chartered said they had an exposure of ₹3,500 crore in Essar Steel, but the CoC was not willing to apportion a proportionate amount for settlement.
The order from the Supreme Court will mean the CoC will issue a fresh settlement agreement with ArcelorMittal and it is expected that the acquirer will pay ₹42,000 crore to settle the dues to the creditors and make a fresh investment of ₹8,000 crore to revive the company going forward.
The Essar Steel insolvency proceedings have been going on in the NCLT for two years now.