NCLAT allows promoters of insolvent Sterling Biotech to regain control
05 Sep 2019
The National Company Law Appellate Tribunal (NCLAT) has held that shareholders and owners can reach a settlement with the creditors while their entity is under liquidation and an official liquidator has been appointed by the insolvency court.
The NCLAT on Wednesday set aside a bankruptcy court order to liquidate debt-ridden Sterling Biotech, while allowing its promoters to take back control of the firm after making full payment to the lenders, thereby opening up a new window for promoters looking to retain control of their companies facing bankruptcy proceedings.
A three-member NCLAT bench comprising justices SJ Mukhopadhyay, AIS Cheema and member (technical) Kanti Narahari set aside the 8 May order of the National Company Law Tribunal`s (NCLT) Mumbai bench and allowed the withdrawal of a petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC).
In its oral order, given last week, the appellate tribunal said that settlement would have to be done by the promoters under a one-time settlement (OTS) and not through the corporate debtor or its properties. The tribunal, however, said the appointed liquidator can continue till the entire payment is made to the lenders.
The ruling may clear the way for companies willing to pay up their debt to be admitted for insolvency resolution.
In this regard, it may be noted that promoters of insolvent Essar Steel have expressed willingness to take back the company after settling all debt in full.
The matter, however, is pending in the bankruptcy court after a prolonged legal battle and ArcelorMittal`s successful resolution proposal for Essar Steel is awaiting the final order.
The Insolvency and Bankruptsy Code (IBC) also provides for taking a company out of the resolution process if 90 per cent of the creditors agree to it.
A promoter-director of Sterling Biotech had filed a scheme of compromise in winding up proceedings before the Bombay High Court after the appointment of a liquidator. The Bombay HC transferred the petition to the NCLT Mumbai bench on the basis of a notification dated 7 December 2016.