DHFL lenders to consider NCLT suggestion of higher payout to small investors

NCLT okayed Piramal Group’s resolution plan for DHFL on June 7 but also suggested that lenders consider a redistribution of funds citing earlier judgements like the Essar Steel case. NCLT asked the CoC to report back to the court on its decision regarding the redistribution of funds in two weeks’ time from the date of the order.

The court “suggested” that the creditors' committee allot more money to the small investors. It observed that Fixed Deposit Holders of DHFL have requested lenders “enhance the percentage of the payment made in the plan and the same should be increased to the level of Secured Financial Creditors i.e. approximately 40% the Financial Creditors would be getting in this plan.”

Making it clear that there is no additional monetary obligation for Piramal Group, NCLT said the CoC could consider the inter se distribution between various creditors viz Public Depositors, Fixed Deposit Holders, NCD Holders, Small Investors, Employees Provident Fund Trust, Army Group Insurance Fund etc, “so that lakhs of small investors would be benefited.”

It also suggested that the “ARMY Group” be treated as a separate class, subclass of creditors and be repaid Rs 39 crores of their claims in full, “considering the nature of duties performed by them who are protecting the Nation, sacrificing their lives, difficult working conditions and human service to keep peace of the country it would be appropriate for the members of the CoC to reconsider and to repay their entire admitted claim without any hair cut thereby expressing our deep concern, gratitude and respect to the Army Personnel.”

As per Insolvency and Bankruptcy Code regulations, dissenting creditors- who vote against the resolution plan- are only paid the liquidation value. But the courts have asked lenders to increase payouts for certain classes of creditors in the past, sidestepping the provisions of the law.

Piramal Group’s total offer of Rs 37,250 crore includes an upfront cash payment of Rs 12,700 crore to the creditors, CNBC-TV18 reported earlier. Piramal Group has also offered Rs 3,000 crore of cash to lenders from the interest earned on the existing cash on DHFL’s books, another Rs 1,000 crore for the insurance stake, and Rs 1,000 additional cash for interest income after NCLT approval. This takes the total cash for the creditors at Rs 17,700 crore. The remaining Rs 19,550 crore is in the form of instruments payable over 10 years.

As per the distribution plan approved by the CoC, the secured financial creditors would recover Rs 34,546.31 crores against admitted claims of Rs 83,304.69 crores, translating into a recovery of 39.06 percent. This does not factor in another Rs 3,000 crores additionally entitled to financial creditors from interest earned on cash on DHFL’s books, which would further increase their recovery. The unsecured financial creditors would recover Rs 177.99 crores against their admitted claims of Rs 3,778.30 crores, translating to a 2.83 percent recovery. Operational creditors would recover Rs 6.03 crores or 2.63 percent of their Rs 164.70 crores of admitted claims.

As part of the plan, Piramal Group would infuse Rs 1 crore of equity in DHFL to subscribe to 100% of their shares. It would subsequently delist DHFL from both exchanges, extinguish the equity shares held by DHFL shareholders, and then reverse merge Piramal Capital and Housing Finance into DHFL. However, post-merger, PCHFL will not get the deposit-taking licence of DHFL. “While granting NoC by RBI, the status of the Corporate Debtor (DHFL) is changed from Deposit-taking Housing Finance Company to Non-Deposit taking Housing Finance Company” NCLT noted.