Reliance Capital’s bankruptcy process to be delayed over bidding structure of clusters

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The bankruptcy process of Reliance Capital is likely to be delayed further over a confusion of finalising resolution plans for its subsidiaries, which are profit-making entities.

Apart from being profitable, these subsidiaries are “well-capitalised” and have proper management teams running their operations. As per the Insolvency and Bankruptcy Code (IBC), resolution plans cannot be submitted for companies that are not under financial stress, a source close to the development said.

Under Reliance Capital’s bankruptcy process, the bidders had two options — either to bid for the entire assets of the company or one or more of its clusters (subsidiaries). The subsidiaries are Reliance General Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction Company, Reliance Securities, Reliance Commercial Finance and Reliance Home Finance.

Last week, the RBI-appointed administrator received 55 bids as part of the ongoing insolvency proceedings, of which about 33 Expressions of Interest (EoIs) were for the clusters. The applicants included a consortium led by Piramal Group, Yes Bank, Zurich Insurance Company, IndusInd International Holdings, Jindal Power and Darwin Platform Group of Companies chairman Ajay Harinath Singh, among others.

The administrator, Committee of Creditors (CoC) and their legal advisors have different opinions on inviting bids for these profit-making entities, even though it is legally tenable to accept financial bids for the entire assets of Reliance Capital.

A suggestion by the lenders was that the bidders should form a consortium and bid for Reliance Capital’s entire assets, rather than subsidiaries.On his part, the administrator raised concerns on the methodology for setting up a consortium and which company will be responsible for implementing the scheme.This confusion is leading to a delay in the finalisation of the Request for Resolution Plan (RFRP) document, the source said, adding, the CoC and administrator are yet to finalise the RFRP document. As per the original timeline, the RFRP was to be issued by April 5.

The administrator and CoC will now have to find a solution to let companies place bids, which are compliant with IBC rules, for individual clusters.Reliance Capital’s resolution plan is already delayed with the CoC planning to seek a 90-day extension to the June 3 deadline. The lenders were planning to seek an extension as the remaining nearly two months’ time is not enough to complete the entire insolvency process, that includes checking the books, conducting due diligence, inviting financial bids and shortlisting candidates, among others.

If approved, the lenders will get time till September 3 to close the process.

On November 29, 2021, the Reserve Bank of India superseded Reliance Capital’s board following payment defaults and governance issues, and appointed Nageswara Rao Y as the administrator for the bankruptcy process. The regulator also filed an application for initiation of Corporate Insolvency Resolution Process (CIRP) against the company before the National Company Law Tribunal’s (NCLT) Mumbai bench. In February this year, RBI appointed administrator invited EoIs for sale of Reliance Capital assets and subsidiaries.