Standard Chartered Bank challenges Essar Steel’s resolution plan

Standard Chartered Bank, the third-largest secured financial creditor of Essar Steel, has filed an application before the bankruptcy court alleging that the resolution professional and Essar’scommittee of creditors (CoC) approved a resolution plan that does not comply with the Insolvency and Bankruptcy Code.

In its plea before the NCLT Ahmedabad bench, Standard Chartered also said that the CoC had negotiated with the resolution applicant (ArcelorMittal) exclusively, and misused its voting rights to create an artificial distinction among the secured creditors. That has led to a drastic reduction in Standard Chartered’s dues to only Rs60 crore from Rs 3,487 crore. Of this, the secured principal outstanding amounts to Rs 2,646 crore, the bank alleged.

It urged the bench to either reject the ArcelorMittalresolution plan or, alternatively, direct ArcelorMittalto distribute Rs 42,000 crore so that financial creditors get their dues on a pro-rata basis on the amount of admitted claims by the RP or the principal amount, with a direction that Standard Chartered must get at least Rs 2,646 crore.

Essar’s CoC had last month approved a Rs 42,000-crore resolution plan by ArcelorMittal which reflected 100% of the principal outstanding dues of Essar Steel ‘s secured financial creditors.

As per ArcelorMittal’s submission to the Supreme Court on its proposal in September 2018, Stanchartsaid it was entitled it to receive a minimum of Rs2646 crore of its dues. Incidentally, Standard Chartered had voted against the resolution plan. Immediately thereafter, Essar’s promoters also came up with a Rs 54,000-crore plan that seeks to repay all its creditors.

Standard Chartered declined to comment on the matter. Other banks in the CoC, including the State Bank of India, could not be immediately reached for their comments.

Commenting on the development, an ArcelorMittalspokesperson said: “We have followed the IBC process in good faith since first submitting our EoIin 2017. The committee of creditors has clearly decided ArcelorMittal’s plan is in the best interests of Essar Steel and we are confident that the process will be implemented correctly and according to the law.”

Standard Chartered said in its application that it had extended a loan of $500 million to Essar Steel Offshore (ESOL) in August 2010 for securing long-term arrangements for coal as part of a major expansion in Essar Steel. However, owing to financial difficulties at ESOL, the facility was refinanced to the tune of $413 million in February 2014, with an extended repayment schedule. It included an irrevocable guarantee from Essar Steel.

To secure the loan, Essar had also pledged some 71 million ordinary shares of ESOL in favour of Standard Chartered, the bank said.

In its application, Standard Chartered has said that the CoC had opposed its inclusion in the Joint Lenders Forum before the initiation of Corporate Insolvency Resolution Process against Essar Steel and alleged that the CoC had “always harboured an attitude of spite and bias” against it.

Standard Chartered is aggrieved by the CoCpractice of forming a core committee of the CoC, which it believes is outside the scope of IBC. The core committee included State Bank of India, ICICI Bank, IDBI bank and Edelweiss ARC. The petition alleged that this panel ‘illegally’ negotiated withArcelorMittal and retained the right to distribute the amount of Rs 42,000 crore of upfront payment among the financial creditors as per the choice of the core committee members.

The application said that the core committee members recommended Standard Chartered receive Rs 60.71 crore against the admitted claim of Rs.3487.09 crore, or only 1.47%.

SBI and other lenders, meanwhile, took a bigger share of the amount whereby the lenders would receive 100% of the principal amount and 40% of the interest amount, the bank said in its plea.

More than a week ago, the committee of creditors in the Essar Steel bankruptcy case sought the dismissal of two applications that could potentially delay debt resolution at the stressed steelmaker, ET reported on November 16.

The committee also sought day-to-day hearing of other such applications, filed by operational creditors. A group of 30 vendors, who had supplied goods and services to Essar, came together to petition the NCLT’s Ahmedabad chapter asking for their dues worth more than Rs 600 crore.

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