A day after the Supreme Court declared Noida an operational creditor instead of a financial creditor in the Insolvency and Bankruptcy Code (IBC), the authority said it will challenge the order as it affects its financial interests and also limits its say in insolvency proceedings of debt-ridden companies.
Since a number of realty companies having projects in Noida, and also Greater Noida, are currently facing insolvency proceedings before the National Company Law Tribunal (NCLT), being declared an operational creditor will hurt the authority’s financial interests
With operational creditor status, the Noida authority’s financial interests will not be looked into on priority basis as it will have limited say in the voting of the committee of creditors that decides the fate of a realty or industrial company facing corporate insolvency resolution (bankruptcy) proceedings.
“We are exploring legal options. We will file either a review application or a curative plea in the Supreme Court against this order as it will impact our financial interests,” said Ritu Maheshwari, chief executive officer, Noida authority.
According to the IBC, if a company faces insolvency proceedings in the NCLT, then a resolution professional takes over the company and the realtor or board of directors loses control over decision making. Subsequently, the resolution professional forms a committee of creditors (CoC) comprising banks, homebuyers and other stakeholders.
The CoC invites proposals from companies, which want to take over debt-ridden company. Once proposals are submitted, the CoC finalises one out of all available options on the basis of a voting in which lenders such as banks and homebuyers, who are financial creditors, take part. Operational creditors have minimum say in the voting
And also, when it comes to taking a haircut on the debt of a company (forgoing a portion of the money owed), then the operational creditor (Noida) will become the first stakeholder to bear the loss.
As a result, in every case pending before the NCLT, the authority’s financial claim will get affected drastically, said experts. There are at least 20 cases of realty companies pending before the NCLT.
“But none of the 20 cases has reached the final stage. We will continue protecting our financial interests in every case as per the available legal options. We will not let these 20 cases affect our financial interests,” said Maheshwari.