WHEN the NCLT (National Company Law Tribunal) admitted the Go First Airline bankruptcy plea on May 10, it said that there was “admittedly’’ a debt and a default by Go First.
Therefore, under the circumstances, the tribunal said that it was left with no option except to admit the airline’s petition. “As a necessary consequence of Go First plea being admitted, a moratorium is being declared,’’ it said mmediately freezing repossession of aircraft, scrapping the board and appointing a bankruptcy resolution officer.
Not surprisingly, Go First Chief Executive Officer Kaushik Khona told news agency ANI “I think this is a historic decision. It’s going to help the process… Millions of prayers have been heard and I think we could not have got a better order than this… We are very happy that we got this order, an admission and a moratorium’’.
Spirit of the Code
He said that the process was in line with the spirit of the Insolvency and Bankruptcy Code (IBC). “We are very grateful for the entire process we had undergone and I am sure this is in line with the spirit of IBC so that we can decide on the revival, which the IRP (Insolvency Resolution Professional) will do,” Khona said.
So what does this NCLT order mean? GoFirst liabilities of Rs 11,463 crore go into freeze Go First is now protected from any suits or continuation of pending suits or proceedings against it, including the execution of any judgment, decree or order in any court of law, tribunal, or arbitration panel till the completion of the insolvency proceedings.
Moreover, it has also restrained on transfer, encumbrance, alienating, or disposing of its assets and any action to foreclose, recover or enforce any security interest created by it in respect of its property.
A Pandora’s Box
Many observers feel that the NCLT decision to accept the Go First plea for bankruptcy proceedings will open a Pandora’s Box with more and more companies using this as a ruse to restructure their businesses that have gone bad. Khona himself alluded to that when he told journalists that one of the critical reasons for approaching the NCLT was not to look at dissolving the business, but a plea really for restructuring it since it is still a viable business.
Khona said the aircraft lessors were taking an irrational action of repossessing the aircraft and approaching the NCLT is the only way to protect the assets as we will seek a moratorium under the Insolvency Bankruptcy Code (IBC).
As expected, Aircraft lessor SMBC Aviation Capital immediately appealed against the NCLT order allowing Go First’s insolvency plea. SMBC Aviation Capital, which was earlier RBS Aviation Capital, is one of the world’s largest aircraft leasing companies. Apart from SMBC Aviation Capital Ltd others who opposed Go First include Narmada Aviation Leasing, Yamuna Aviation Leasing, GAL MSN, and GY Aviation Lease.
Lessors move DGCA
Soon after the NCLT allowed Go First’s plea, SMBC Aviation Capital’s counsel moved the National Company Law Appellate Tribunal (NCLAT) Chairman Justice Ashok Bhushan who has listed the matter for hearing. That GoFirst wanted their aircraft (on lease and in default of payment not to be repossessed) is evident from the fact that during the past week, various lessors have approached aviation regulator DGCA for deregistration and repossession of a total of 45 planes of Go First.
The GoFirst case will set the roadmap for many such cases that are likely to come up. For one, how sympathetic will be the bankers? That none of them opposed the plea is itself reflective of how they are viewing the process. Secondly, is the bankruptcy caused by bad management or is it a bonafide business failure?
P&W engine failures
One of the reasons that Go First has been constantly talking about is the lack of enough planes (and thereby revenue) on the air thanks to the monumental failure of the Pratt and Whitney engines on their aircraft. So have won an arbitration proceeding that is yet to be implemented. And P&W is also contesting their claims.
Interestingly Indigo too has the same engines but has less than 10 per cent of the woes that Go First is facing. One reason is Indigo is prompt in its financial transactions with P&W, unlike Go First as claimed by the engine manufacturers. So there are lots of issues and this case could give us an insight into how the IBC can help good companies gone bust and separate them from the bad companies gone bust.
