NCLT admits Go Air insolvency plea; moratorium kicks in

The principal bench of the National Company Law Tribunal on Wednesday admitted low-cost airline Go First's plea for insolvency. The move triggers an immediate moratorium on the airline's assets.

The moratorium will apply to all assets of the airline, including property in possession of Go First as a lessee.

"...and also keeping in mind the urgency of the case, to protect and maximize the value of the assets in line with the objectives of IBC (Insolvency and Bankruptcy Code), employment and the larger public interest involved, the petition has been admitted," the court said.

The NCLT has also appointed Abhilash Lal as the interim resolution professional and directed him to take charge of the corporate insolvency resolution process of Go Airlines with immediate effect.

Lal has been directed to take all steps to keep the airline as a "going concern" and run its services smoothly. The NCLT has also directed Lal to ensure that the company does not resort to laying off its employees in due course and that any such decision or event be brought to the attention of the bench immediately.

"No new proceedings can be filed against Go Air in any civil court or arbitration," Smiti Tewari, Partner, Khaitan Legal Associates said, adding that as proceedings by the airline can continue under the authority of the resolution professional, the Singapore arbitration against Pratt & Whitney can continue.

The Wadia Group-backed airline had filed for insolvency on 2 May citing financial losses to the tune of ₹10,800 crore in lost revenues and additional expenses due to faulty engines supplied by US-based Pratt & Whitney. The airline has sought compensation of approximately ₹8000 crore in the Singapore Arbitration.

Go Airlines (India) Ltd is the registered name of the company established in 2005. The airline rebranded itself as Go FIRST in May 2021 for a better brand recall value as it prepared for an initial public offering, which later could not take off.

As per the insolvency process, Lal will now call for claims and once the claims are collated, the financial creditors will be invited to form the Committee of Creditors, Smiti Tewari, Partner, Khaitan Legal Associates said.

"For any unpaid dues, the aircraft lessors will be required to file claims as operational creditors. So far as the asset is concerned, they will likely not be able to retrieve it now as the recovery of lease held asset is prohibited by the statutory moratorium under IBC. Given the stakes involved, it is likely that the lessors will challenge the Order in NCLAT," Tewari said.

The board of directors and management of the airline have been suspended and directed to "extend all necessary support and cooperation" to the resolution professional and his team in running smooth operations at the airline.

The suspended management has also been asked to deposit ₹50 million with the resolution professional to meet the immediate expenses of the insolvency process. This will be subject to adjustment by the committee of creditors.

Lawyers opine that there is a very small possibility for the company promoters to withdraw the application for insolvency as it has now been admitted by the NCLT, and a resolution professional is appointed.

"...there is no going back unless 90% of the voting share of the Committee of Creditors permits a withdrawal of the application pursuant to a settlement or restructuring of debts," Pooja Tidke, Senior Partner, Parinam Law Associates said.

"Whilst this will make it difficult for the lessors to regain possession of their aircraft, it could also serve as a blessing in disguise. If the company is run effectively as a going concern, and aircraft are up and running the lessors could see some cash flow coming in. That said, it is not going to be easy to run the business smoothly given the limited resources available," Tidke said.

So far, aircraft lessors have approached the civil aviation regulator Directorate General of Civil Aviation to de-register over 40 aircraft of Go First but the requests have been made 4 May onwards. Under Irrevocable De-registration and Export Request Authorisations (IDERA), the civil aviation regulator is required to deregister aircraft within five days from the name of a third party in cases such as the default of lease rentals. 

Hence, it remains to be seen whether some lessors have been able to de-register their planes or they are now under frozen assets as part of a moratorium.

Moratorium indicates a period during which the norms do not allow any judicial proceedings for recovery, sale, or transfer of assets. This also restricts termination of essential contracts against the corporate debtor.