US-based fund DVI invokes force majeure clause in Amtek’s debt resolution

In a uncommon occasion in the Insolvency and Bankruptcy Code (IBC) regime, US-based funding fund, Deccan Value Investors (DVI) has triggered the force majeure clause in Amtek Auto debt resolution case citing deteriorating efficiency of the company debtor in the wake of the Covid-19 pandemic.

Confirming the event, DVI stated, it had submitted its resolution plan for Amtek Auto in January, in good religion and with an in depth technique to revive Amtek’s fortunes.

“In March, Covid-19 triggered an immediate and accelerating deterioration in industrial activity across the economy. The impact was severe on the auto sector and Amtek’s financial position worsened quickly, rendering DVI’s commercial assumptions for the company redundant,” DVI added.

It additional stated that DVI’s resolution plan states that any materials affect on Amtek’s efficiency as a consequence of a pandemic would enable DVI to train force majeure.

While a force majeure clause is frequent in industrial contracts, in an IBC case, the committee of collectors (CoC) typically does not conform to together with such a clause in the resolution plan. However, when DVI submitted its plan in January, Covid-19 had already hit China, and collectors agreed to grant safety below the clause.

It is known that DVI wrote to the lenders earlier this month triggering the force majeure clause and sources aware of the matter indicated that below the present phrases it could not be potential for the corporate to implement the resolution plan because the industrial premise had modified.

The force majeure clause had thresholds on efficiency below which the plan would not be viable, they stated.

This may additional complicate issues for Amtek’s resolution. The company insolvency resolution course of (CIRP) for Amtek has been working for greater than three years now.

Amtek was on the Reserve Bank of India (RBI’s) first record of non-performing belongings (NPA)s, mandated for debt resolution below the IBC. The CIRP was initiated after the Corporation Bank moved an software in NCLT.

Amtek owes lenders round Rs 12,500 crore. The DVI bid is believed to be Rs 2,700 crore, of which Rs 500 crore is the upfront money part and the stability Rs 2,200 crore could be paid from future money flows. The plan had secured 70.07 per cent votes of lenders.

DVI had earlier additionally filed an software in the Supreme Court in search of extension for time to debate the phrases with the CoC and to evaluate the affect of Covid-19. However, the applying was dismissed by the apex court docket.

Land dispute

Regardless of the pandemic, nevertheless, DVI’s plan had run into hurdle over land dispute, a matter which is in the National Company Law Appellate Tribunal (NCLAT).

DVI stated, it had constructed into its resolution plan and contract, sure situation precedents with out which the deal couldn’t proceed.

“One such condition precedent related to an ongoing dispute between the creditors and leaseholders of a key plot of land on which Amtek’s manufacturing facilities stand. All of these matters will now be adjudicated by the courts. DVI is confident of its position and looks forward to a final outcome that upholds the sanctity of contract under the IBC,” it added.

The situation precedent pertains to a mortgaged property, the ACE Complex land, which had come up when the resolution skilled had filed for approval of DVI’s resolution plan in NCLT in June.

Vistra ITCL (India), as safety trustee of KKR India Financial Services and L&T Finance Limited, had filed an interlocutory software earlier than the NCLT towards the resolution skilled (RP) and the committee of collectors (CoC) for the ACE Complex land, over which it has mortgage rights.

It had sought aid that the land -– a secured property/mortgaged property -– needs to be saved outdoors the CIRP of the company debtor in addition to outdoors the confines of any resolution plan.

Amtek’s factories – 5 separate items that account for about 40 per cent capability – are on this land.

The proprietor of the land, Gateway Impex, nevertheless, executed a lease deed in January and the NCLT order had not thought of the lease settlement. The DVI plan acquired NCLT approval in July.

Thereafter, DVI filed an enchantment in NCLAT towards the order. Vistra ITCL, too, filed a caveat and the appellate tribunal allowed it to file an software in search of impleadment. The matter is prone to come up for listening to on Monday; the invocation of the force majeure clause was additionally anticipated taken up then.

Sources aware of the Amtek difficulty stated that with out the protections, the valuation of the bid would have been a lot decrease.

Clauses together with force majeure, long-stop date and land lease have been negotiated with the banks to construct consolation and strong contractual safety for risk-taking by consumers, they added.

This is the second time that the resolution course of for Amtek has hit a roadblock. It needed to be began afresh as a consequence of non-implementation of Liberty House’s plan earlier. In the primary spherical, DVI was the opposite bidder other than Liberty House Group.

A Timeline:

July 2017: NCLT admits Amtek Auto

August 2019: NCLAT orders liquidation after non-implementation of Liberty House plan

December 2019: SC directs RP to ask recent bids

January 2020: CoC approves DVI plan

July 2020: NCLT approves DVI plan; DVI filed an enchantment in NCLAT towards NCLT order

August 2020: DVI triggers force majeure clause

DVI plan:

Bid: Rs 2,700 crore of which Rs 500 crore is money part and Rs 2,200 crore to be paid from future money flows

Amtek owes collectors Rs 12,500 crore


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