2020 (10) TMI 1277 - Tri - Companies Law

Approval of Scheme of Arrangement under Companies Act: SEFL's Creditor Meetings & Interim Order

In Re : SREI Equipment Finance Ltd.

The Tribunal approved the proposed scheme of arrangement under Section 230(1) of the Companies Act, 2013, involving SREI Equipment Finance Ltd. (SEFL) and ... Sanction of scheme of arrangement - section 230(1) of the Companies Act, 2013 - HELD THAT:- Various directions regarding holding, convening and dispensation of various meetings issued - directions regarding issuance of various notices also issued. The scheme is approved - application allowed. Issues Involved:1. Proposed Scheme of Arrangement under Section 230(1) of the Companies Act, 2013.2. Formal consent from creditors for the acquisition by Slump Exchange.3. Issuance of non-convertible debentures to secured creditors.4. Impact of Covid-19 and RBI Circulars on the financial stability of SEFL.5. Arrangements with creditors under Part III and Part IV of the scheme.6. Directions for holding separate meetings of creditors.7. Interim orders to protect the interests of stakeholders.Issue-wise Detailed Analysis:1. Proposed Scheme of Arrangement under Section 230(1) of the Companies Act, 2013:The application was filed under Section 230(1) of the Companies Act, 2013, concerning a proposed scheme of arrangement involving SREI Equipment Finance Ltd. (SEFL) and its creditors. The scheme aimed to obtain formal consent from the creditors for the acquisition of the transferred undertaking from SREI Infrastructure Finance Ltd. (SIFL) by way of Slump Exchange and the issuance of non-convertible debentures to secured creditors.2. Formal Consent from Creditors for the Acquisition by Slump Exchange:The scheme intended to formalize the creditors' consent to the acquisition of the transferred undertaking from SIFL by SEFL. This would ensure certainty in the relationship between SEFL and its creditors, leading to better long-term relationships and economic prosperity for SEFL. The scheme also aimed to address the asset-liability mismatch caused by the economic downturn due to the Covid-19 pandemic.3. Issuance of Non-Convertible Debentures to Secured Creditors:The scheme proposed the issuance of non-convertible debentures to secured creditors to manage the financial strain caused by the pandemic. This arrangement was necessary to support the MSME sector and infrastructure sector borrowers of SEFL by extending moratorium and one-time restructuring support as mandated by the RBI August Circulars.4. Impact of Covid-19 and RBI Circulars on the Financial Stability of SEFL:The outbreak of Covid-19 and the subsequent economic downturn led to significant financial difficulties for SEFL. The RBI issued circulars granting moratoriums and allowing one-time restructuring of loans to mitigate the financial stress. However, these circulars did not extend specific relief to the NBFC sector, leading to a severe asset-liability mismatch for SEFL.5. Arrangements with Creditors under Part III and Part IV of the Scheme:The scheme involved arrangements with two types of creditors, defined in Part III and Part IV. Separate meetings for these creditors were necessary to consider and approve the scheme. The scheme aimed to convert a significant portion of SEFL's debts into secured non-convertible debentures within 60 days from the appointed date.6. Directions for Holding Separate Meetings of Creditors:The Tribunal directed SEFL to hold separate meetings for Part III and Part IV creditors to consider and approve the scheme. The meetings were scheduled to be held at 'The Westin,' International Financial Hub, New Town, Kolkata, on December 16, 2020, and December 23, 2020, respectively. The Tribunal also provided detailed instructions for the advertisement, notice, and quorum requirements for these meetings.7. Interim Orders to Protect the Interests of Stakeholders:The Tribunal, considering the overall plight of the NBFC sector and the significant role of SEFL, directed that the creditors maintain the status quo regarding their contractual terms, dues, claims, and rights. This interim order aimed to protect the interests of stakeholders and prevent any coercive actions that could prejudice the implementation of the scheme.Conclusion:The Tribunal approved the proposed scheme of arrangement and directed SEFL to hold separate meetings for Part III and Part IV creditors. The interim order ensured that creditors maintained the status quo, protecting the interests of stakeholders and facilitating the successful implementation of the scheme. The application was disposed of with no order as to costs.