ByVinod Mahanta,Sachin Dave ET Bureau Aug 24 2017
MUMBAI:On a Friday afternoon this month, Milind Kothari looked at his WhatsApp message with a furrowed brow.
The India head of BDO, a leading professional services firm, had received a message from his turnaround and business support partner, Sundaresh Bhat, who had just taken over ABG ShipyardBSE -0.36 % as interim resolution professional (IRP) on an order by the National Company Law Tribunal. Bhat had found himself in a tough position after he reached Dahej, Gujarat, to take stock of things at the company. As soon as he reached its premises, he was surrounded by about 200 angry workers, who said they had not been paid by the company for 18 months.
At the Mumbai office, Kothari, after reading his colleague’s messages, was fearful that Bhat may be manhandled by the angry mob.
“In their mind, I was the new owner of the company, it’s way too complicated for me to explain how insolvency works to angry workers and staff surrounding me,” Bhat said.Thankfully for Bhat, the situation did not blow out of proportion as he was able to calm the tempers.
“Somehow I managed to pacify the workers and told them that I have been appointed by the court. With reluctance they agreed to cooperate,” said Bhat.
BDO is working with three companies — Jyoti StructuresBSE 1.09 %, Bhushan Power & Steel and ABG Shipyard — that are into insolvency proceedings.
Professionals brought in by lenders to handle the transition in insolvency proceedings are finding themselves reeled in situations they had not bargained for.
So, from facing threats of violence to bribe and handling angry mobs to pacifying borrowers have become part of their job.
“People’s expectations are sky high on day one, they think the professionals will arrive with solutions to all their problems — funding, turnaround plan, everything.
So, suppliers, employees, other operational creditors and in some cases even customers tend to flock to the IRPs,” said an IRP at one of the companies.
KPMG’s Anuj Jain, the insolvency professional at Jaypee InfratechBSE 4.96 %, has had several meetings with irate home buyers and the first couple of meeting were rocky. Flooded with unending queries, the firm quickly put up FAQs on the company’s website to inform home buyers about recent regulatory changes.
Executives at EY, PwC, Deloitte, KPMG, Grant Thornton, BDO and Alvarez & Marsal are appointed in 12 high-profile insolvency cases currently under process. In most cases, the partners in these firms have taken up as insolvency professionals who would head the companies for the next six months. “Just how many people can the IPs meet? They don’t realise that the IPs aren’t here to liquidate the company but to facilitate a viable turnaround plan which would be in best interest of the key stakeholders,” said Ashish Chhawchharia, partnerrestructuring services, Grant Thornton Advisory Pvt Ltd.
TIME-BOUND RESOLUTION
“People get confused between liquidation and resolution. The intention of the insolvency and bankruptcy code is to work out a time-bound resolution, and only in the event that a time-bound resolution cannot be worked out that the company may go into liquidation,” added Sanjay Doshi, partner, KPMG in India.
Promoters are also having difficulty in getting used to a situation where they are not in charge and need the IP’s approval for things.
Never in India had there been a situation where the creditor had the control, said Chhawchharia.
Some operational creditors or suppliers are also calling insolvency professionals and offering bribes, say people in the know.
These creditors may not even get 10% of the total amount the companies owe them, mainly because lenders have seniority in a settlement.
Firms on their part are trying to handle the situation. In some instances — like in the case of PwC — bodyguards have been provided to the partners acting as resolution professional.
In most of the situations, these professionals face morchas and agitations by workers, their families and others when they visit the site. “This is not what we bargained for,” said a partner at a consultancy currently working as an insolvency professional.
Consulting firms and lawyers working with them are set to make about Rs 200 crore from the 12 insolvency proceedings that are being seen as the starting template for a potentially Rs 8 lakh crore recovery exercise in the stretched banking system. These professionals are charging Rs 1-1.25 crore per month per company, something that may just not be enough for the problems they face, said some partners.
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