No resolution in sight even after 3 years for Era Infra insolvency

The insolvency case of Era Infra Engineering, one of the 12 large loan default cases referred to National Company Law Tribunal (NCLT) for insolvency proceedings by Reserve Bank of India (RBI), is unlikely to see any resolution this year, say sources involved with the resolution process.

The Era Infra case was referred to NCLT in June 2017 with 11 other cases including the likes of Essar Steel, Bhushan Steel, Lanco Infratech and Jaypee Infra. While all other cases were admitted immediately by NCLT, it took 11 months more for insolvency proceedings of Era Infra to begin because of pending winding up petitions against the company at Delhi High Court. And now after three years, while all other cases have seen either resolution or liquidation, Era Infra case has not reached any form of closure.

According to sources, the committee of creditors (CoC) is yet to approve either of the two resolution plans that the resolution professional has received so far - the reason being lack of clarity in terms of the legality of the resolution plans submitted.

Era Infra has received two bids - one from Suraksha ARC and another from a small-time EPC contractor. According to sources both the resolution applicants want to bid for Era Infra and the six special purpose vehicles (SPVs) that it had for contracts given by the government departments.

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Era Infra is an EPC company, and EPC companies are fundamentally services companies and they don't have any assets. Typically, as an EPC company when Era gets contact for a project, they create an SPV, and the lenders fund the SPVs. And because of these inter-linkages a large part of values are stuck in special purpose vehicles (SPVs).

"So when we went to the market, we realised that there was no interest in Era Infra as an EPC company on a standalone basis. They buyers want both the holding company as well as the SPVs. Even if there was some interest from some ARCs, it was primarily to milk the arbitration claim," says a source privy to the proceedings.

Another issue that is delaying the resolution is the fact that in Era Infra all the value is in disputed receivables and all those disputed receivables have gone into arbitration.

Sources told Business Today that Rs 23,000 crore worth of receivables are stuck in arbitration, and it has got Rs 1,200 crore arbitration award during the insolvency period. The CoC expects Era Infra to get a total of Rs 11,000-12,000 crore in arbitration award.

However, the legal issue that CoC now faces with regard to the resolution plans that they have received is whether the former has the legal right to bunch SPVs with the holding company and sell it to either of the bidders.

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Technically, it is the holding company - Era Infra Engineering - that is under insolvency proceedings, and SPVs are separate legal entities. The CoC has now moved an application seeking clarity on that matter at NCLT.

The matter was heard by NCLT two-three times early this year and the next date for hearing on the matter was on March 25, but on March 25, NCLT was closed.

The sources mentioned earlier told Business Today, even if the NCLT gives clarity on issue tomorrow, it will take 3-4 months for the CoC to approve one of the resolution plans. Given the lack of legal clarity, the CoC has not even entered into any negotiations on the commercial aspect of the resolution plan.

So, unless the CoC approves one of the resolution plans, it can't ask NCLT for its final approval.

Besides, there are niggling issues like attachment of properties of Era Infra by Enforcement Directorate. The NCLT is still hearing that case. Therefore, in all likelihood any resolution in the case of Era Infra can only happen in the next calendar year.

Era Infra and its SPVs together owe around Rs 17,000 crore to financial creditors and Rs 777 crore to operational creditors.

The sources said that neither of the resolution applicants is committing any upfront payment, but they are saying that they will fight the arbitration cases, and whatever arbitral awards the company gets would be shared with the financial creditors.

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