Mumbai:Bhushan Steel Ltd on 15 May became the first big loan account to be resolved under the Insolvency and Bankruptcy Code (IBC), with Tata Steel Ltd paying 35,200 crore to the debt-laden company’s creditors. The process was overseen by Deloitte India’s resolution professional (RP) Vijay Iyer. In an interview, Uday Bhansali, president, financial advisory at Deloitte, spoke of the highs and lows of the resolution process. Edited excerpts:

While working as a resolution professional, what were the loopholes you felt exist in the code?

I would not call them loopholes. One set of amendments have been made, rules have been tweaked. Further enactments have also been made by the cabinet with respect to homebuyers and medium and small enterprises. The code and practice will evolve. There will be judgements of courts in some cases that will also set the jurisprudence and establish the practice for handling some of these matters. The Insolvency and Bankruptcy Board of India is very proactive. We have had members of the expert committee reaching out to us for our inputs as practitioners. We are confident many of those recommendations will be implemented. These are more execution-related practical issues.

We understand that RPs have been overwhelmed with litigation? 

The way the code is drafted today, the RP is an individual and you are dealing with corporates. And if you look at the big ones in the first list, they have a turnover of over a billion dollars. The loan exposures are massive. They are large organisations with a huge army of people involved with far-flung operations, overseas subsidiaries, associates, factories, and sales offices. So, on one side, you have an individual who is an RP and on the other side, an institution which is in financial trouble. You need an institutional setup to manage institutional stress. That is what firms like ours or the others in the big four consultancy firms are doing.

Like for Bhushan Steel, we had hired experienced third party agencies with expertise in running steel companies. Litigation is part of the process, especially as far as the promoter or an unsuccessful resolution applicant is concerned.

The promoters or committee of creditors (CoC)—which was more difficult? 

Lenders are a very disparate group with varying interests and exposures. People have been very mature. We have worked with a group of 50 lenders for resolution. They tend to themselves say, let’s form a core group, comprising the top four or five lenders with maximum exposure, among themselves and the rest of the lenders are happy to go along with the decision of the group.

We did not find too many challenges. The bids came at a much later stage. I am talking about initial stages of execution like approval of expenditure, execution of documents, creation and release of charge.

Bhushan Steel is a large company with varied stakeholders and interests from the employees’ perspective. How did you manage it?

When these cases were first admitted for insolvency, there wasn’t an immediate realisation that the promoter may actually lose the company.

There would be some core group of employees who would be very close to the promoters; so, whatever you may do, it will be very difficult to make an impact on that association. But at the same time, there would be 90-95% of employees who are professional and are aware that the company is in trouble and there are reduced cash flows for meeting payment requirements and critical maintenance.

They see that there are a bunch of strong bidders interested in the company which they see as a positive from their own career point of view. They are also aware that RPs are neutral, fair and unbiased; so, getting them to cooperate was not much of a challenge.  

We still see that there are challenges on the hierarchy of creditors, like whose dues come first. 

We will have to see how these court cases are resolved. At least now, we have clarity that homebuyers are at par with operational creditors. So, these things will get resolved one way or the other. It is for the regulator who is forming the law to really opine on these issues. 

How do you look at equity holders’ dues in these debt-ridden companies? 

In most of these cases, we are not seeing financial creditors being paid full, never mind the operational creditors and equity holders who are now last in the line. There might be one-off cases where there is some equity in companies, but those will be extremely rare. 

Do you see the same set of good bidders for the next 26 accounts? 

It would depend on a case-to-case basis. In some cases, we might not see any bidders, but in some other cases, we may be pleasantly surprised. It is also a function of business cycle, commodity business, the potential of the business to generate sufficient cash flows and attract the right level of capital.