Edelweiss moves NCLAT against Synergies Dooray debt recast

Synergies Dooray owed Rs. 190 crore to banks. It sold its assets to Synergies Castings and got them back on rent. NSEBSEEdelweissLoading data…

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    ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIES Mumbai: India’s biggest asset reconstruction company , Edelweiss ARC, has approached the National Company Law Appellate Tribunal (NCLAT) opposing the debt recast plan for Synergies Dooray Automotive on the ground that the deal was fraudulent, void, and set a wrong precedent.
    Edelweiss ARC has also complained to Insolvency and Bankruptcy Board of India about what it has called partisan actions by Mamta Binani, the resolution professional appointed for Synergies Dooray Automotive .

    Synergies Dooray, seen as the first success case of debt recast under the new Insolvency and Bankruptcy Code, is termed as a `sham transaction only on paper’ by the ARC. Edelweiss has alleged that “a fraud was perpetrated by Synergies Dooray , the corporate debtor, its related party, Synergies Castings and Millennium Finance“ and has thus appealed NCLAT to scrap the recast plan.

    Synergies Dooray entered into a complicated deal with its sister concern Synergies Castings even as its matter was before BIFR. Synergies Dooray owed Rs. 190 crore to banks. It sold its assets to Synergies Castings and got them back on rent. Later, Synergies Dooray assigned the debt to Synergies Castings while entering into a one-ti me settlement with banks. In effect, even as the debt was settled in the books of the banks, Synergies Cas tings became their new creditor for Synergies Dooray.

    As all the Board for Industrial & Financial Reconstruction (BIFR) cases were transferred to NCLT, the case of Synergies Dooray also came up before the dedicated bankruptcy court. But interestingly , on November 24, 2016, just one week before the Insolvency and Bankruptcy Code became operational, Synergies Castings assigned a major portion of its debt to third-party Millennium Finance. It sold Rs. 750 crore debt to the finance company at a consideration of Rs. 40 crore. Synergies Castings sold the debt to Millennium Finance since a related party cannot be a member of the committee of creditors a team of lenders that decide the fate of the company . With this transaction, Millennium Finance had a voting right of 75%, while that of Edelweiss ARC was less than 10%.As per the rule if 75% of creditors agree to terms of debt recast within 270 days, the deal is approved by NCLT.

    Edelweiss ARC has appealed that the assignment of the loan to Millennium Finance is void since this should be seen as a relatedparty transaction. “It is a backdoor entry by Synergies Castings through Millennium Finance to capture the majority voting rights in the committee of creditors and circumvent the Code,“ said a senior official at Edelweiss ARC. “We are fighting this case on principle since it amounts to gross misuse of the code.“

    Arguing that it is a case of related-party transactions, Edelweiss ARC has also said that the finance company has not yet paid the consideration amount of Rs. 40 crore to Synergies Castings since the assignment deeds had not been registered and the stamp duty not paid.

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