NCLT Directs Credit Suisse-Led Bondholders to Return Custody of Reliance General Insurance Shares to Administrator

Key Takeaways:

1. The NCLT has directed Credit Suisse-led bondholders to return the custody of equity shares in Reliance General Insurance Co to the administrator, Nageswara Rao Y.

2. The tribunal’s order suggests that these bondholders may be entitled to superior treatment over other creditors, potentially aiding the resolution of Reliance Capital.

3. The Hinduja Group has emerged as the highest bidder for Anil Ambani-promoted Reliance Capital, which is undergoing an insolvency process.

4. The administrator had petitioned for the shares of the insurance unit to be handed over to him, as Reliance Capital was undergoing insolvency and it held 100% equity in Reliance General Insurance.

5. The Credit Suisse-led bondholders had invoked 37% of shares pledged with them of the insurance unit, after Reliance Home Finance failed to honor payments.

6. IDBI Trusteeship, which has the custody of the general insurance shares for the Credit Suisse-led bondholders, argued that handing over the possession of the shares would amount to an extinguishment or relinquishment of the bondholders’ pledge over the shares.

Synopsis:

Bondholders Asked to Return Equity Shares in Reliance General to Administrator

The National Company Law Tribunal (NCLT) has directed Credit Suisse-led bondholders to return the custody of equity shares in Reliance General Insurance Co to the administrator, Nageswara Rao Y. This development could potentially aid the resolution of Reliance Capital, as the tribunal’s order suggests that these bondholders may be entitled to superior treatment over other creditors, potentially aiding the resolution of Reliance Capital.

Synopsis

The NCLT’s directive implies that these bondholders may be entitled to superior treatment over other creditors, potentially aiding the resolution of Reliance Capital.

The Hinduja Group has emerged as the highest bidder for Anil Ambani-promoted Reliance Capital, which is undergoing an insolvency process.

The administrator had petitioned for the shares of the insurance unit to be handed over to him, as Reliance Capital was undergoing insolvency and it held 100% equity in Reliance General Insurance.

The Credit Suisse-led bondholders had invoked 37% of shares pledged with them of the insurance unit, after Reliance Home Finance failed to honor payments.

Key Takeaways

1. The NCLT’s directive suggests that these bondholders may be entitled to superior treatment over other creditors, potentially aiding the resolution of Reliance Capital.

2. The administrator had petitioned for the shares of the insurance unit to be handed over to him, as Reliance Capital was undergoing insolvency and it held 100% equity in Reliance General Insurance.

3. The Credit Suisse-led bondholders had invoked 37% of shares pledged with them of the insurance unit, after Reliance Home Finance failed to honor payments.

This exercise of collation of the assets will enable the successful resolution applicants to place competitive bids for the acquisition of the corporate debtor and fetch a viable resolution plan in the interest of all stakeholders, the order stated. In an alternative scenario, it could result in a situation where the security interests would remain in the possession of the secured creditors who stand outside the resolution process of the corporate debtor, it said. “Effectively, a resolution would proceed without all the corporate debtor’s assets. Such a scenario would clearly imperil the corporate debtor’s revival and will destroy value (instead of maximisation) for all stakeholders.”

IDBI Trusteeship, which has the custody of the general insurance shares for the Credit Suisse-led bondholders, argued that handing over the possession of the shares would amount to an extinguishment or relinquishment of the respondent’s (bondholders’) pledge over the shares. It also argued that the current stage was not the stage to hand over the security. “The factum of the moratorium does not lead to the administrator getting all the assets of the corporate debtor and they cannot be called on to hand over custody,” the trustee said.

Early this week, Credit Suisse wrote to the administrator stating that lenders should not proceed in finalizing the resolution until the NCLT decided on this matter.

FAQ

Q1: What is the significance of the NCLT’s directive to the Credit Suisse-led bondholders?

A1: The NCLT’s directive implies that these bondholders may be entitled to superior treatment over other creditors, potentially aiding the resolution of Reliance Capital.

Q2: Why did the administrator petition for the shares of the insurance unit to be handed over to him?

A2: The administrator petitioned for the shares of the insurance unit to be handed over to him as Reliance Capital was undergoing insolvency and it held 100% equity in Reliance General Insurance.

Q3: What was the argument presented by IDBI Trusteeship regarding the custody of the general insurance shares?

A3: IDBI Trusteeship argued that handing over the possession of the shares would amount to an extinguishment or relinquishment of the bondholders’ pledge over the shares.