July 1, 2021
‘It is effortless to be an armchair expert dishing out opinions. But once you’re on the ground, at the factory, you know what a promoter has to go through. Har aadmi aapko aankh dikhata hain.’
(Mr. Menezes is a Mumbai-based IP)
Could you tell us a little about your academic and professional background?
I am a chartered accountant and I qualified in 2003. After that, I worked with Tata Chemicals. Thereafter I joined ICICI Bank for 7 years. So essentially, I’m an ex-banker. I was a part of the lending and client relationship team at ICICI, and I quit my job in December 2011 to start my consulting practice. A large part of my consulting practice was into financial advisory and debt restructuring. And then IBC came, so it was just a natural extension for me to shift from debt restructuring advisory to IBC. When IBC started, I was one of the first few IPs to join. I’m 41 on the list and cleared in the first month when the exams started. And that’s how the journey in IBC started.
But since being an IP is so different from even being in an advisory or consulting role in debt restructuring, what made you choose this role? Because there you have to be very hands-on as opposed to other roles, which tend to be more passive.
I understand what you’re saying. It was just a natural extension and at that time, it was envisaged that most of the debt restructurings would happen under IBC. And if you recollect, section 29A was not introduced yet. So it was understood that most of the restructuring and M&A deals in the distressed asset market would primarily take the IBC route. Although people did know about the creditor in control concept, it was a new field especially for professionals venturing into becoming Insolvency Professionals which came with its own set of demands and challenges. It was an exciting field, and I’ve always believed in stepping out of my comfort zone at regular intervals. Only then you can grow as a professional. A large part of my skills which I’ve carried with me, is from my work experience at ICICI Bank.
I have handled 14 assignments till date as IRP / RP and Liquidator, and each of these assignments came with its own unique challenges. Out of the 14, there were five assignments of Videocon group of Companies, out of which four upon consolidation were part of the first group insolvency process. In all my cases where I was appointed as the IRP, I have continued as the RP.
Since you were one of the first professionals to register as an IP, what was your experience in the early days? What were the challenges or experiences?
It was simple when we started because no one knew the law entirely and there was not enough jurisprudence. Of course, there were issues in terms of resistance from promoters and various stakeholders involved in the process. So the management resisted this change, the workers / employees never knew what was happening and who the RP was and his roles and responsibilities, the vendors never understood the going concern concept to start with. So there were many issues in the initial period, and every promoter wanted to know who was this person trying to run his company.
But slowly, after maybe another five, six months, as cases started getting admitted, the market participants knew what IBC was and broad process. And thereafter, once the RBI introduced the top 12 cases, that in my opinion was a big boon to the profession. Because the top 12 cases came with heavy litigation, bankers had their skin in the game and they had to know and understand the concepts under IBC, what are the loopholes, how to circumvent it and so on. These top 12 cases obviously gave a big boost to the entire ecosystem of IBC. Of course, I would say the initial days were much easier. Now, it’s much tougher. Because there is a lot of jurisprudence, which has been evolving. Earlier, many IPs were thinking they could run the process as they pleased. Very few knew that they were only an administrator and not the promoter. You’re there for nine months, you don’t own the company, right? You have all the power of decision-making. But along with that comes responsibility. So, that’s one vital aspect which I followed from day one was to act as a facilitator to the process and ensure that the time-bound process is followed to the tee.
But now if you see, in every COC meeting, the lenders are fully aware about the entire process. All the concerned stakeholders are aware of their rights. In the various accounts, they have various RPs taking various decisions. So now this ecosystem is fully geared up. And I think from here on, it’s only going to improve. We see a lot of talk about haircuts. But that is mostly because of the cases we call ‘the ICU cases’. When you’re not well, the first step is you go to an OPD. Sometimes, obviously, you get admitted. They want to keep you under observation for a few days. But imagine a situation where you’re walking on the road and you fall down. Where would you go?
Do you think a big haircut is always attributable to the condition of the CD, or could there be other factors at play?
Currently, you can attribute something to COVID-19. But I can tell you there has been a lot of interest in IBC cases and many of the interested bidders are fully aware that a very clean company, free of all the liabilities, no encumbrances may be available which would not happen even in a normal M&A transaction. That’s the difference, and you have a lot of market participants who are ready to bid for a company. But yes, if you look at a haircut, you must look at both the principal and the interest portion, especially in the bigger cases and for a significant amount of time the company continued under distress. Naturally, core business collapses and the interest component is huge. A debtor which defaulted in 2014 at an interest rate of 12%, will have debt ballooned up today after seven years. I am handling a case where the original debt when it defaulted in 2012 was of around 1800 crores. The company moved from failed CDR into a resolution process with debt of around 4250 crores in 2017. At the end of the day, you get the value for what is left in the Company, be it under IBC or under any other process. Now, this company went through a successful resolution process and there were significant delays in the NCLT for approval of resolution plan due to various issues. Finally, the successful resolution applicant walked out as they were a US fund and Company headed to liquidation in October 2020. So, 4250 crores of debt when I took the company as an RP and now as a liquidator, I am faced with claims for around 6500 crores. That is what has happened — between an IRP taking over and the company going into liquidation, three years have passed. The interest has been applied to liquidation claims with no value addition to the Company. If you look at what the lenders are going to get today and if you compare that at a 2017 base, or even add a base which is 6500 crores, it is going to be paltry.
That is true. If you were to pick one or two out of all the assignments that you’ve done, which have been the most memorable or the most challenging?
I believe all the assignments were challenging and complex. It’s difficult to pick a particular transaction. But yes, there were two or three interesting assignments. We had a CIRP assignment when the protection of Section 32A did not yet exist. In this CD, huge amounts of funds had been siphoned off and the CBI, ED, SFIO, everyone was investigating it. In fact, in this case, we filed an application against the CBI for non-cooperation because they never gave us the documents. Having said that, the NCLT passed an order but the documents never came. Still, with the limited information, we resolved this company. Although the resolution plan was approved by the COC with the requisite majority, it never saw the light of the day because of delays at the NCLT due to various reasons. In this particular resolution, two SPVs were created as part of the plan — One for the operative assets and one for litigation claims to recover the money which was siphoned off. The Corporate Debtor entity was to go under liquidation after complete implementation of the plan, as no resolution applicant wanted to take over a tainted company. So, there was a question on its going concern status and there was not much jurisprudence around it. We never thought that mere survival of the name of the company amounted to a going concern, its heart had to survive too. The resolution was approved by the requisite majority of the COC, and we had 31 members in the COC. I have been fortunate enough to be part of assignments with pretty large COCs. This was my largest COC with 31 members. You name the bank, public or private, it was there. I have many CIR / liquidation processes with more than 20 members in the COC.
Surprisingly, you seem happy about large COCs. Whereas one would imagine that in a large COC everyone is going to be pulling in a different direction. So the job of the RP might become that much more difficult.
The way I understand this process, you have to maintain the going concern status of the Company and try to achieve a time-bound resolution or liquidation. The important stakeholder in the corporate debtor is the ‘business’, so there is a commitment to running that business. Once that is settled, your main focus, like Arjun in Mahabharata, is the resolution. If you’re lost in fighting battles with various stakeholders, you will lose focus on the job and a very clear-cut demarcation should be that you have ensured the resolution process is a very tight ship in terms of the deadlines. And that’s what we’ve been doing. It is the intent with which a resolution professional brings the information for due diligence, that matters. I also believe it’s a lot to do with interpersonal skills. You will have to take things up on a common ground. I’ve been very fortunate in having the support of many of the lenders, and that’s why having a large, COC also helps. Because there is diversity of views and within it emerges an amicable solution. If one or two lenders are pulling it in a different direction, the other lenders would intervene and say let’s meet on a common ground. I mean, you’re not the enemy, nor is the company the enemy. The lenders may have differences of opinion. And sooner or later, they resolve it among themselves. So it’s all about managing the process, understanding where to take it. And at the end of the day, everyone wants to see the company headed to a resolution without delays.
That’s interesting. One recurring strand that is seen is that in running this process, many IPs feel that often times they get swamped by compliances, which hinder the actual job of the RP. What do you think about that?
Compliance is a necessary evil. If you run a company, there are so many compliances which have to be done, but there are professionals who are looking at it. Today, if you look at a large corporate, they have an entire team doing compliances on a regular basis. Compliances are a result of the need for information and controlling the process by the regulator. Otherwise, how are you going to tell the stakeholders and the public at large that the processes which have been put into motion are yielding the desired results? So compliances are here to stay. Even professionals like chartered accountants and advocates have systems with compliances built into them, in one form or another. In fact, at many places I have seen that at the time of compliances, we realise what was missed.
What are some lesser known things that an IP faces while performing this job?
In my view, one of the most simple mistake which the RP should avoid is to gang up against the promoter along with the COC members. An RP’s job is to run the entire process and keep himself focused. His job is to investigate transactions and put the findings to the NCLT for appropriate directions. You have to respect the promoter for what he has created. And I will tell you in almost all the cases that I have handled, many of these promoters have built very robust businesses. Business failures have happened, of course, sometimes coupled with acts of questionable intent. But to a large extent, they have created something which is not easy in our ecosystem. It is effortless to be an armchair expert dishing out opinions. But once you’re on the ground, at the factory, you know what a promoter has to go through. Har aadmi aapko aankh dikhata hain. So you have to also treat the promoter with equal respect for what he has created. In terms of untoward instances, yes, these are natural fallout of your job, right? If you join the armed services, one day the bullet might come your way. Similarly, it’s the way for an IP, it’s an onerous job. You will have to take up the job knowing well all the issues you are up against. In one of the cases where my staff had gone to the site in a remote location, they were not allowed to leave till 10 o’clock at night. The vendors held back my team members and wanted written commitments. I said to my team, write whatever they want, and just get out from that location; the team members managed it well. These are some hazards in the job, and as I said before, it has a lot to do with interpersonal skills. Of course, there are issues, but your conduct is also critical. That is the biggest thing I would say is going to drive the entire relationship between the RP and the various stakeholders. Trust is important because you don’t have a long time, you’re there for nine months, you’re there for 330 days at the max. So you also have to trust the people who are there on the ground. Give them that confidence. Because otherwise, they are going to haunt you on your next visit if you make wrong commitments. My mantra is, tell the truth.
Today, a lot of dissemination of information has happened. Everyone understands the constraints under which you, as a professional, is working. They are seeing that you’re making an honest effort.
Maybe somewhere, people have started losing faith or confidence in the code. So how do you see it holding, holding up in the coming years? What Where do you think the IBC is going?
No one wants a five rupees return of capital on a hundred rupees investment. Having been a part of the banking system from 2005 onwards, I can tell you recovery was very difficult and time-bound recovery is very difficult given our legal system and legal infrastructure. The small defaulters are easy to handle, but the larger ones are very difficult. Then the top 12 cases were brought in under IBC. The government did a fantastic job by creating a lot of jurisprudence and confidence, saying that this is a system which will work. And we’ve seen wherever assets were performing, the better resolutions have happened. But we have also had cases which were taken to IBC after they’d gone into the ICU. Jet Airways almost bled to death, before going to the IBC. Videocon as a group was struggling from 2012 or may be even before. If you do a deep restructuring, a complicated financial surgery, do you expect the patient to get up and start running? The answer is no, it will take time to heal. We have also seen many restructuring in the form of CDR, SDR helped sick companies to revive.
It’s a new law. It’s only been four years. Many of these cases are legacy cases which are envisaged to be completed in a time-bound manner. Maybe another four or five years down the line, we will have cases with better resolution values. The idea is to diagnose. If you diagnose early, a solution is always possible, and it will always be a better solution. That’s why the pre-pack is something which has now come as a step in the right direction. And it’s a timely intervention. No law is going to be perfect on day one. I think the best thing which may happen to IBC is timely disposal of cases at NCLT. That is the latest black box that disheartens many people. I think the timely interventions, disposals, and the improvement of infrastructure at NCLTs is going to help a lot. Leave aside IBC, if you have a proper judicial mechanism to deal with disputes, to deal with issues, to deal with interpretation, any law would work wonderfully.
Lastly, what would you like to say to the aspiring insolvency professionals?
I would say all the best. (Laughs)
One of the most important things that I have learned in IBC is to stay updated. I do read a lot of case law, discuss it with many fellow professionals. Remember, it’s a 24 by seven job. There is theoretical knowledge, but how do you apply it practically is something that comes by experience.
Second, it is going to come by dialogue and participation of all relevant stakeholders. The greater the number of people that you involve, the better. Many times, the RP decisions are a black box. No one knows on what basis he has taken the decision. So, the decision is just being thrust upon the workmen, employees, and the vendors. Therefore, it is always better to communicate. That is the key in my view. I make it a point that nine out of 10 times I communicate the decision. I say that this is what we are doing. This is what is my challenge. And these are the factors based on which the decision has been made. Right or wrong, people may challenge it, but you’ll have to live with it. At least explain the rationale of what is happening. These skills are essential, for IPs as well as for any professional. You may not have the knowledge about every industry, but you will have to gain those necessary skills to survive and take the assignment through.
(This interview was conducted by Adv. Parth Indalkar and has been edited and condensed for clarity.)
“The Adjudicating Authority ignored my pleas about being threatened with a gun.”June 10, 2021
‘It is effortless to be an armchair expert dishing out opinions. But once you’re on the ground, at the factory, you know what a promoter has to go through. Har aadmi aapko aankh dikhata hain.’July 1, 2021
The anomaly of the situation was that avoidance was adjudicated, but the promoter was so hell-bent on not losing the control that he shut the business by simply cutting the power to the servers.July 4, 2021