2005 (10) TMI 289 - HC - Companies Law

Court Approves Company's Debt Restructuring Scheme under Companies Act

The Court approved the 'Scheme of Arrangement' between the petitioner company and its secured creditors under sections 391(1) and 394 of the Companies ... Compromise and arrangement Issues:Confirmation petition under sections 391(1) and 394 of the Companies Act, 1956 for confirming the 'Scheme of Arrangement' between M/s. Noida Toll Bridge Company Ltd. and its secured creditors for restructuring the debt.Analysis:1. Background and Debt Structure:The petitioner company, a special purpose company, constructed the Noida Toll Bridge with debt financing of approximately Rs. 286 crores and equity financing of Rs. 122 crores. The debt incurred at a high interest cost of 16% per annum led to accumulated net losses, making it challenging to sustain the interest burden.2. Corporate Debt Restructuring (CDR) Scheme:To address the financial challenges, the petitioner approached the CDR Empowered Group for restructuring the debt owed to Banks, Financial Institutions, and Deep Discount Bond holders. The CDR Scheme was approved to restructure the principal sum and interest due to Banks and Financial Institutions, followed by a proposal for Deep Discount Bonds restructuring.3. Scheme of Arrangement and Creditor Approval:The Scheme aimed to reduce the interest liability to 8.5% per annum, benefiting the petitioner company by managing the debt service rate. The meeting of secured creditors was convened, where a significant majority voted in favor of the resolution, indicating creditor approval for the Scheme.4. Objections and Withdrawals:Initially, objections were raised by certain bondholders, but most objections were subsequently withdrawn. Remaining objectors with a minimal number of bonds raised concerns, but failed to provide substantial evidence against the Scheme's interests.5. Regulatory and Public Interest Considerations:The Regional Director's report highlighted the majority creditor acceptance of the Scheme, emphasizing the reduction of interest on Deep Discount Bonds. The Court found no evidence of prejudice to shareholders, creditors, or public interest, approving the Scheme as it aligns with legal provisions.6. Judgment and Approval:Considering creditor acceptance, lack of evidence of prejudice, and alignment with legal requirements, the Court approved the Scheme of Arrangement. The Scheme was deemed effective from the specified date, with formal orders to be filed for registration within the prescribed period.In conclusion, the judgment validates the 'Scheme of Arrangement' between the petitioner company and its secured creditors, emphasizing creditor approval, regulatory compliance, and the Scheme's alignment with legal provisions to address the financial challenges faced by the company.