Go First may face forensic scrutiny | Mint
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Business News/ Companies / News/  Go First may face forensic scrutiny

Go First may face forensic scrutiny

Forensic audit to be triggered if transactions raise concerns
  • The airline decided to move NCLT, terming it a result of the ‘ever-increasing number of failing PW engines’
  • Go First airline at IGI Airport in New Delhi on May 3 after the airline cancelled flights and filed for bankruptcy. (PTI)Premium
    Go First airline at IGI Airport in New Delhi on May 3 after the airline cancelled flights and filed for bankruptcy. (PTI)

    MUMBAI : Banks could initiate forensic audit of Go Airlines (India) Ltd if a transaction audit to track undervalued or preferential transactions as part of the insolvency resolution process throws up adverse findings, a banker aware of the development said.

    Lenders met Go Airlines management to find out why it unilaterally sought insolvency but are yet to get a satisfactory response, the banker said, requesting anonymity. Although some had foreseen impending stress, most banks were surprised when the airline approached the National Company Law Tribunal (NCLT) in May despite not defaulting on repayments.

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    Graphic: Mint

    “We could look at a forensic audit depending on the report of the transaction audit. A transaction audit and a valuation report are expected to be commissioned by the resolution professional after the next meeting of the committee of creditors (CoC)," the banker said.

    Transaction audits are done under the provisions of the bankruptcy code, as the resolution professional needs to form an opinion on whether there are any transactions that are either preferential, undervalued, fraudulent, or extortionate. However, forensic audits by banks are independent exercises to determine if transactions violate the conditions of the loan or Reserve Bank of India (RBI) rules.

    “Sometimes, banks opt for a forensic audit even when a company faces insolvency proceedings and the transaction auditor has already given a report. This is to ensure lenders have their audit report," said Ashish Pyasi, associate partner at law firm Dhir and Dhir Associates.

    The CoC unanimously voted on 9 June to replace the interim resolution professional, Abhilash Lal of consulting firm Alvarez and Marsal. On 15 June, NCLT’s principal bench approved the appointment of Shailendra Ajmera of EY as the resolution professional.

    The banker cited above said lenders sought the change because they believe EY has more capabilities in turning around aviation companies than Alvarez. “The resolution professional has just been appointed and directed by NCLT to reply to aircraft lessors’ petitions," the banker said.

    Emails to Central Bank of India and Go Airlines remained unanswered.

    Mint reported on 5 June that BOC Aviation (Ireland) Ltd, Jackson Square Aviation Ireland Ltd, and Engine Lease Finance BV approached NCLT seeking aircraft repossession. While Jackson Square has leased around eight aircraft, Engine Lease leased four engines to GoAir.

    The airline owes lenders 6,521 crore, according to disclosures made in its application to the insolvency tribunal in May. Central Bank of India is the lead lender of the consortium and has an exposure of 1,987 crore, of which 682 crore was sanctioned under the Emergency Credit Line Guarantee Scheme (ECLGS). The credit scheme, first introduced to aid small businesses during the pandemic, was later extended to more covid-hit sectors. Other lenders include Bank of Baroda (BoB), IDBI Bank, Deutsche Bank, and US-based aircraft financier UT Finance Corp.

    Meanwhile, lenders have started setting aside funds to cover losses. BoB has made provisions of 500 crore against loans of 1,300 crore, excluding ECLGS credit. About 1,000 crore of loans from the BoB is collateralized through tangible security and corporate guarantees.

    NCLT’s principal bench admitted Go Airlines’ insolvency plea on 10 May. The airline decided to approach the insolvency tribunal, terming it a result of the “ever-increasing number of failing engines supplied by Pratt & Whitney’s International Aero Engines, Llc". This, it said, has resulted in the airline having to ground 25 aircraft as of 1 May.

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    Shayan Ghosh
    Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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    Published: 18 Jun 2023, 11:57 PM IST
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