The National Company Law Appellate Tribunal (NCLAT) has upheld steel tycoon Lakshmi Mittal-led ArcelorMittal’s £4.2 billion bid for the acquisition of Essar Steel. The Resolution Plan submitted by ArcelorMittal has been, however, modified by the tribunal to safeguard the rights of the operational creditors and other financial creditors of beleaguered steel comany. The appellate tribunal also rejected the contention by the promoter of Essar Steel, Prashant Ruia that ArcelorMittal was ineligible to bid due to holdings in loan defaulting companies.
A two-member bench of the appellate tribunal headed by Chairperson Justice S J Mukhopadhaya said that both the classes of creditors will share the sale proceeds proportionately and that the distribution of funds will be done by the resolution professional handling the Essar Steel case and not by the company’s committee of creditors (CoC). This verdict places operational creditors on a par with financial creditors for the first time (it should be noted that operational creditors are not part of the CoC). The order also for the first time determines that the CoC has no powers to decide on the distribution of the sale proceeds but the resolution professional. CoC will only look at the viability of the resolution proposal submitted by the bidder.
The total claims of Essar Steel’s operational and financial creditors are over £6.9 billion. Financial creditors had earlier anticipated a recovery of 90% of their claims of over £4.94 billion but with recent ruling, financial creditors will get only 60% of the dues from the £4.25 billion offered by ArcelorMittal. On the other hand, operational creditors, which were supposed to get a small portion of their dues, will now get to recover 60% of their claims. The financial creditors, who are upset over the ruling, are considering moving the Supreme Court over the development.
ArcelorMittal said: “We need to review the full written order to understand any implications on completion of the transaction.” While an Essar spokesperson said: “It appears that new facts regarding ineligibility under Section 29A, which emerged only after the previous judgment of the Supreme Court, have not been given due consideration. We are awaiting the detailed order and will decide our course of action thereafter.” The Essar Steel case has been dragging on for more than 700 days.