What it is about?
Imagine a company that took debt from banks who are secure creditors and from operational creditor. This company at a later date is not able to repay this loan. The company will then proceed to NCLT proceedings. Then a problem arises. To whom should the company pay with the money from its assets. Its Operational creditors or financial creditors. The judgment today addresses this issue.
Operational creditors are those that gave their services to this company who could not pay back as no cash is available.
Why is it important?
If the Supreme Court favor the Operational creditor, then it have an impact on the entire banking system. The Banks which is already stressed will think twice before lending and in this financial environment where demand is low, only liquidity helps is being throttled at its source.
Not just that, Banks will increase loan interest rate if the judgement is in favor of Operational Creditor. This is have major implications in a credit broken environment which is prevailing today.
Now the Judgment,
CoC- Committee of Creditors are the bankers who lent to distressed company
No Doubt, Ultmiate decision on distribution is with CoC
NCLT cannot interfere with the commercial decisions taken by the CoC
Coc decision should also balance the interest of all shareholders
SC relaxes timeline of 30 days prescribed in IBC.
Bottomline
Banks prevail. Banks decide who will get how much money after the sale of distressed company. Mind you, Credit broken environment is still all around us.
Imagine a company that took debt from banks who are secure creditors and from operational creditor. This company at a later date is not able to repay this loan. The company will then proceed to NCLT proceedings. Then a problem arises. To whom should the company pay with the money from its assets. Its Operational creditors or financial creditors. The judgment today addresses this issue.
Operational creditors are those that gave their services to this company who could not pay back as no cash is available.
Why is it important?
If the Supreme Court favor the Operational creditor, then it have an impact on the entire banking system. The Banks which is already stressed will think twice before lending and in this financial environment where demand is low, only liquidity helps is being throttled at its source.
Not just that, Banks will increase loan interest rate if the judgement is in favor of Operational Creditor. This is have major implications in a credit broken environment which is prevailing today.
Now the Judgment,
CoC- Committee of Creditors are the bankers who lent to distressed company
No Doubt, Ultmiate decision on distribution is with CoC
NCLT cannot interfere with the commercial decisions taken by the CoC
Coc decision should also balance the interest of all shareholders
SC relaxes timeline of 30 days prescribed in IBC.
Bottomline
Banks prevail. Banks decide who will get how much money after the sale of distressed company. Mind you, Credit broken environment is still all around us.
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