Go First to chase 12,000 crore with litigation finance

According to its insolvency filings, Go First owes at least  ₹11,463 crore collectively to banks, international lessors and vendors. (HT_PRINT)
According to its insolvency filings, Go First owes at least 11,463 crore collectively to banks, international lessors and vendors. (HT_PRINT)

Summary

  • The airline has moved a Delaware court to enforce the arbitration ruling, but has run short of funds to pursue the case after it stopped flying in May.

MUMBAI : Lenders to Go First plan to scout for litigation finance to bring home up to 12,000 crore tied up in various lawsuits, two people aware of the development said, as the bankrupt airline stares at likely liquidation. The amount includes an arbitration award that it won against engine maker Pratt & Whitney at the Singapore International Arbitration Centre (SIAC) earlier this year, as well as several other lawsuits under way.

The airline has moved a Delaware court to enforce the arbitration ruling, but has run short of funds to pursue the case after it stopped flying in May. The idea of litigation finance was suggested by Go First’s resolution professional since all the current “parameters are pointing towards liquidation" as the only alternative left, one of the two people said.

 

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Sarvesh Kumar Sharma/Mint

M 12,000 crore is due to the airline but stuck in litigation. Even if 50-60% of this comes, lenders can recover a large part of their dues and the outstanding payments can be completed," the first of the two people said on the condition of anonymity.

“The suggestion is that existing legal costs can be paid off to lawyers by the lenders, and then a credit fund or a large stressed-debt fund can be roped in for financing all the litigation going forward and help Go First win the cases," the person said. The committee of creditors (CoC) will meet and finalize the plan before January and a potential investor is expected within the next two months, the person added.

“Total litigation costs may be less than 100 crore, but on the upside, a favourable court verdict may fetch up to 12,000 crore," said the person.

“Apart from the case against Pratt & Whitney, there are a few other smaller court cases, winning which may fetch $200-300 million more to Go First," said the first person.

According to its insolvency filings, Go First owes at least 11,463 crore collectively to banks, international lessors and vendors. Of this, at least 6,521 crore is owed to financial creditors, including Central Bank of India, Bank of Baroda, IDBI Bank and Deutsche Bank. The airline had hoped to restart with an interim financing from these lenders, but its aircraft lessors objected saying their dues should be cleared first.

And then on 3 October, the ministry of corporate affairs, in line with the Cape Town Convention, altered the norms in favour of aircraft lessors involved in insolvency cases, shrinking chances of revival. The nail in the coffin came when no bidder turned up for its bankruptcy auction.

“Liquidation is the only way out. At least a favourable verdict from the US courts for the airline will bring in some decent funds to deal with the dues," the person added.

An email sent to Go First’s resolution professional remained unanswered.

The second person, a banker who is part of the lenders’ consortium, said litigation financing, a model that is prevalent abroad, would aid the process of recovering dues from the airline. Both the financier and the company (Go First) will benefit if the award goes in favour of the airline, the person said.

“We will get our share based on the waterfall mechanism under liquidation," the banker said, adding the liquidation of Go First now appears certain given there are no bidders to turn it around. “There are statutory dues as well as workmen dues like gratuity and provident fund that need to be paid as per the waterfall mechanism."

Under Section 53 of the Insolvency and Bankruptcy Code (IBC), the waterfall mechanism specifies the order in which dues will be distributed among claimants, beginning with insolvency resolution process costs and liquidation costs.

Go First’s aircraft are leased and will not be useful when its assets sold piecemeal, but the airline has some immovable assets as collateral which could be liquidated, the banker said.

A legal expert said the external funder can provide interim finance during the corporate insolvency resolution process (CIRP), and such capital can be used to fund the ongoing arbitration. However, this financier has to be paid on priority, and would therefore require the CoC’s approval.

“Considering that the CIRP timelines will outrun the arbitration and enforcement timelines, the CoC would stand to gain if the claims in the arbitration proceedings are assigned in favour of a funder for a consideration, and that would be divided among the stakeholders. Such assignments are a regular phenomenon in liquidation proceedings as sale of not readily realizable assets," said Alipak Banerjee, head of international dispute resolution at law firm Nishith Desai Associates.

This is probably the first time litigation financing is pursued in a large insolvency resolution case. In June 2022, The Economic Times reported that the Yashomati Hospitals’ resolution provided the first exit for third-party litigation funding startup LegalPay.

If Go First is successful with the litigation, it may also help the lenders repay as much as 400 crore to customers who had booked flights before the airline’s abrupt grounding, the first person added.

On 23 November, the National Company Law Tribunal (NCLT) granted a 90-day extension to Go First for the resolution process, which will be effective from 6 November to 4 February. The company’s resolution professional (RP) has been directed to submit a 90-day action plan to the tribunal, but the first person said the latest litigation-financing plan will be readied, and the procedure to liquidate Go First’s assets will begin before 4 February.

On 14 September, Mint first reported that staring a possible liquidation, Go First’s lenders were planning to seek an extension of the resolution timeline.

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