The Surprising Exit Of Sintex BAPL From IBC

Private equity firm KKR initiated insolvency against a Sintex Group company in August last year. Four months later, an operational creditor came along, got its insolvency application admitted against the same company, settled with the promoter shareholder, and the company has now exited the IBC.

The financial creditors got no say in the matter and KKR is still waiting for its insolvency application to be admitted.

The National Company Law Tribunal's blessing to withdrawal of Sintex Bright Autoplast Pvt. Ltd. from the IBC has now been challenged by KKR before the appellate tribunal. Sintex BAPL is a wholly owned subsidiary of Sintex Plastics Technology Ltd., a listed company.

Sintex BAPL: Story So Far

Zielem Industries' insolvency application against Sintex BAPL was admitted by the Ahmedabad bench of NCLT in December last year. An operational creditor, Zielem claimed a default of Rs 40 lakh as dues arising from supply of raw material.

Within days, Zielem and Sintex BAPL arrived at a settlement and Sintex Plastics approached the appellate tribunal to set aside the NCLT order of admission.

The National Company Law Appellate Tribunal sent the parties back to the tribunal and stayed the formation of the committee of creditors for a week.

Sintex BAPL... In & Out Of IBC In 7 Months

At this stage, financial creditors KKR and DSP Investment Managers, with dues worth Rs 435 crore and Rs 134 crore, respectively, intervened. The CoC formation was further delayed by the tribunal in light of ongoing settlement talks with KKR and DSP.

The talks fell through, and the tribunal was asked to determine whether Sintex BAPL can exit the IBC without following the requirements under Section 12A. The provision allows for withdrawal of insolvency proceedings if 90% of the creditors' committee approve it.

The tribunal concluded that the requirement of 90% approval will not arise since the CoC never got constituted. For this fact matrix, it said, inherent powers of the tribunal will become applicable.

KKR and DSP's rights won't get prejudiced if a withdrawal is allowed. KKR's application is pending, and no other financial creditor has objected to the withdrawal, the NCLT noted.

Insolvency proceedings will be detrimental to the interests of employees and the government, who may not get anything under a resolution plan, the tribunal pointed out.

For these reasons, the tribunal allowed Sintex BAPL to exit from the IBC.

KKR's Worry

Withdrawal from the IBC would mean an immediate end of moratorium. That would give promoters a free hand to deal with the company's assets, two lawyers involved in the matter told BloombergQuint on the condition of anonymity.

Anticipating this situation, KKR and DSP sought a stay on the withdrawal order. The NCLT granted that as an interim relief for seven days.

But by the time this stay order came in, State Bank of India withdrew Rs 116 crore from the trust and retention account.

Sintex BAPL's interim resolution professional, KKR, DSP objected to it. On Tuesday, the tribunal passed an interim order directing SBI to give an undertaking that the amount will be transferred back if the company goes back into insolvency.

Separately, the bench also reserved its order on KKR's insolvency application. The stay on the withdrawal order ends on July 7.