Operational Creditors in Insolvency: A Tale of Disenfranchisement

This note attempts to explain the unique predicament of operational creditors under the Insolvency and Bankruptcy Code, 2016 (IBC). It examines the various factors considered by the judiciary in recent pronouncements that have shaped the status of the operational creditors and outlines solutions that could be considered for a constructive resolution of the issues at hand.
This note is divided into four parts – the first part discusses certain issues considered by the Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, and its key findings in this regard. In the second part, the authors highlight how the IBC and the ruling of the Supreme Court unfairly disadvantage operational creditors, and offer solutions in line with international practice. In the third part, the authors point out a lacuna in the IBC regarding the treatment of the claims of creditors with ‘disputed’ claims in an insolvency resolution process and propose an alternate framework to determine such claims. The last part underscores the key takeaways from this article and a few concluding thoughts.

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Enforcement of Foreign Awards granting a Put Option despite objections under the FEMA

A ‘put option’ is a clause agreed in a contract whereby one party has the right (not an obligation) to sell its shares in a company to another person at an agreed price. Such price need not be an absolute number recorded in the contract and could be in the form of an agreed formula or may be left to determination by an expert (pre-agreed or subject to future agreement) using financial data as of an agreed date. A put option works as a means of exit for investor shareholders. Subject to a valid exercise of the put option and correctness of the valuation, once a put option is exercised, it entails a contractual obligation on the party upon which such option is exercised to purchase the shares at such price and acquire the shares.
This note seeks to briefly discuss the treatment of objections to enforcement of foreign awards on grounds that the put option clause granted through the foreign award violates the foreign exchange laws of India.

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Voluntary Delisting

The current situation caused by the COVID-19 pandemic is unprecedented and several listed companies have seen a reduction in their value due to the sharp fall in stock prices compared to the beginning of 2020. The recent weeks have also seen delisting announcements by certain widely held companies including those on the NIFTY-50 and subsidiaries of global corporations.
Voluntary delisting is essentially a strategic move where a promoter (controlling shareholder) of a listed company and the listed company seek to delist the shares from the stock exchanges in India and is primarily governed by the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, as amended (the “Delisting Regulations”).
This note discusses the legal framework and process for voluntary delisting under the Delisting Regulations and certain key issues involved in delisting.

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SEBI Order: AstraZeneca Pharma and the Elliott Group

In connection with a proposed delisting of shares of AstraZeneca Pharma India Limited (AZPIL) in 2014, the SEBI recently issued an order dated June 5, 2020 under Sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act, 1992, holding that:
(i) AstraZeneca Pharmaceuticals AB Sweden (AZPAB), the promoter of AZPIL, and the Elliott Group (a group of related foreign institutional investors that collectively held a significant shareholding in AZPIL) colluded with each other to get the shares of AZPIL delisted and influence the delisting price of such shares without considering the interests of the retail shareholders of AZPIL; and
(ii) The conduct of AZPAB and the Elliott Group amounted to a manipulative and fraudulent trade practice under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Practice Relating to Securities Market) Regulations, 2003.
The SEBI questioned the conduct of AZPAB and the Elliott Group and concluded that there existed a ‘meeting of minds’ between AZPAB and the Elliott Group prior to the delisting announcement. This note analyses the SEBI’s order.

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COVID-19: Suspension of Insolvency Proceedings in India

On June 5, 2020, the Insolvency and Bankruptcy Code, 2016 was amended to inter-alia prohibit creditors and corporate debtors from initiating corporate insolvency resolution proceedings in respect of defaults arising during the six (6) month period from and including March 25, 2020 (the date of commencement of the national lockdown) – this period may be extended up to one (1) year.

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Purchase Price Adjustments in Court Schemes

Price adjustments in M&A transaction documentation enable parties to align the consideration originally negotiated at signing to the facts and circumstances existing at closing. Such adjustments become particularly important when there is a protracted time gap between signing and closing, usually due to statutory and regulatory approvals, and in case of listed entities, volatility in the financial markets. Certain transactions are implemented through tribunal-approved schemes of merger, de-merger, etc. (“Schemes”). While Schemes offer certain advantages such as an exemption from takeover regulations in case of listed entities, price adjustments in such transactions are subject to greater scrutiny and constraints, given requirements for tribunal approval and in the case of listed entities, pricing requirements and review by stock exchanges and the securities regulator. This note sets out certain price adjustment mechanisms that could be considered by parties to Schemes involving listed entities.

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Fifteen Years

This month, we mark fifteen years since our Firm‘s inception in 2005. The principles with which we started and that continue to drive us today are our commitment to quality of work, dedication to our clients and a professional culture in Indian legal services with international standards.

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Can India be the Pied Piper that Entices Foreign Companies out of China?

For nearly a decade and half, India has been the China-in-waiting. The world’s back-up or the next manufacturing center. There have been many discussions and writings through this period that have urged India to get its act together and provide that alternative to China. Not for the lack of will but its implementation, this move just did not happen and China continued to flourish and gain global supremacy in manufacturing. However, recent events including the disruption caused by the Covid-19 pandemic have once again opened an opportunity for India.

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Proposed Suspension of fresh initiation of Insolvency Proceedings for up to one year

As a part of a series of relief measures in response to the current pandemic situation, the Finance Minister of India has announced on May 17, 2020 a proposed suspension of fresh initiation of insolvency proceedings up to one year. In addition, it has been announced that the Central Government will be empowered to exclude COVID-19 related debt from the definition of “default” under the Insolvency and Bankruptcy Code, 2016, as amended. It is envisaged that an ordinance will be issued to give effect to such measures. This note considers certain points in connection with the proposed ordinance.

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Avoidable Transactions under the Insolvency and Bankruptcy Code: Key Considerations

For the success of any insolvency regime, it is critical that distressed companies are prevented from takings measures which could hamper recovery to creditors in the event insolvency proceedings were to commence. Such protective provisions assume particular importance in the Indian context, where companies are often closely held by promoter groups who may seek to transfer value from assets through opaque structures to other group companies for their own benefit. Accordingly, the National Company Law Tribunal (the “NCLT”) is empowered to undo any such transaction to protect the interests of creditors and other stakeholders under the Insolvency and Bankruptcy Code, 2016 (the “IBC”).

Recently, in the matter of Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited and others (“Jaypee Infratech”), the Supreme Court of India clarified certain key aspects in respect of preferential transactions under Section 43 of the IBC. Such preferential transactions are one of the four categories of “avoidable” transactions (i.e., those which may be annulled or disregarded) under the IBC, the others being undervalued, extortionate and/or fraudulent transactions.

This note briefly discusses the different types of avoidable transactions under the IBC, the guidance issued by the Supreme Court on certain aspects of such transactions in Jaypee Infratech and a few key considerations for parties to mitigate the risk of their transactions falling within the ambit of such avoidable transactions.

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