Disagreements have emerged between lenders and the RBI-appointed custodian of debt-plagued Reliance Capital Ltd (RCL) over the wind-down process of the company’s various subsidiaries or clusters that are on the block, sources said.
As of March 25th, the deadline for submitting expressions of interest (EoI), 54 bids were received for the settlement of RCL and its many subsidiaries.
Of those, about 22 EoIs are for RCL as a company, while the rest are for individuals or a combination of the company’s eight subsidiaries, sources said.
RCL had offered all bidders two options. Under the first option, companies could bid for Reliance Capital, including its eight subsidiaries or clusters. The second option gave companies the freedom to bid for their subsidiaries, individually or in combination, sources said.
Important clusters of RCL are Reliance General Insurance, Reliance Health Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction and Reliance Securities.
Disagreements have arisen between the administrator, the creditors’ committee (CoC) and their respective legal advisers over the subsidiaries and their winding-up process, sources said, adding that all of RCL’s subsidiaries are profitable companies, well capitalized and management teams of those are also the businesses intact.
Therefore, according to IBC, no compliant plan can be presented for these subsidiaries as no remediation is required as none of these units are stressed and are a well run business, they said.
The disagreement between the Administrator and the CoC on the methodology to be followed for the sale of these subsidiaries is causing a delay in finalizing the Resolution Plan Request (RFRP) document, they said.
According to the original schedule, the RFRP was to be issued to all companies that had submitted EoIs by April 5, but according to sources, the CoC and Admin have yet to finalize the terms of the RFRP document.
The RFRP document sets out the guidelines for submitting and evaluating the resolution plan for a debtor. The RFRP must be agreed between the Administrator and the Chain of Custody before it is made public to all potential resolution applicants.
There is disagreement as to whether price bids should be obtained for individual clusters under the second option and how financial bids for subsidiaries can be obtained in an IBC compliant manner.
According to sources, the CoC intends to force the formation of a consortium of cluster-level bidders to submit a company-level resolution plan, but the administrator is not in favor of it.
The administrator’s main concerns with this approach relate to the mechanism for forming a consortium of bidders at the cluster level and responsibility for failure to meet these plans.
Many of the CoC’s RFRP proposals are not compliant with the Insolvency and Bankruptcy Code (IBC) and therefore create tensions with the administrator, sources said.
The Reserve Bank of India (RBI) replaced the board of Reliance Capital Ltd (RCL) on November 29 last year amid defaults and serious governance issues.
RBI appointed Nageswara Rao Y as insolvency practitioner in connection with the company’s Corporate Insolvency Resolution Process (CIRP).
This is the third large non-bank financial corporation (NBFC) against which the central bank has initiated bankruptcy proceedings under the IBC. The other two were Srei Group NBFC and Dewan Housing Finance Corporation (DHFL).
RBI then filed a motion to initiate the CIRP against Reliance Capital with the Mumbai Bench of the National Company Law Tribunal (NCLT). There is a three-member Advisory Committee composed of former State Bank of India DMD Sanjeev Nautiyal, former Axis Bank DMD Srinivasan Varadarajan and former MD and CEO of Tata Capital Praveen P. Kadle.
In February of this year, the RBI appointed administrator invited expressions of interest (EoIs) for the sale of Reliance Capital.