Reliance Capital bankruptcy process to be delayed due to cluster bidding structure

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Reliance Capital’s bankruptcy process is likely to be further delayed due to confusion in finalizing resolution plans for its subsidiaries, which are for-profit entities.

In addition to being profitable, these subsidiaries are “well capitalized” and have appropriate management teams to manage their operations. Under the Insolvency and Bankruptcy Code (IBC), resolution plans cannot be submitted for companies that are not in financial difficulty, a source familiar with the development said.

As part of Reliance Capital’s bankruptcy process, bidders had two options – either to bid for all of the company’s assets or for 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 in the ongoing insolvency proceedings, of which around 33 expressions of interest (EOIs) related to the clusters. The candidates 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 Trustee, the Committee of Creditors (CoC) and their legal advisors have different views on bidding for these for-profit entities, even though it is legally defensible to accept financial bids for all. assets of Reliance Capital.

One suggestion from lenders was that bidders should form a consortium and bid for all of Reliance Capital’s assets, rather than subsidiaries.
For his part, the administrator raised concerns about the methodology for creating a consortium and the company that will be responsible for implementing the scheme.
This confusion is causing a delay in finalizing the Request for Resolution Plan (RFRP) document, the source said, adding that the CoC and the administrator have yet to finalize the RFRP document. According to the original schedule, the RFRP was to be published no later than 5 April.

The admin and CoC will now need to find a solution to allow companies to place IBC-compliant bids 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 request an extension as the remaining time of nearly two months is not sufficient to complete the entire insolvency process, which includes audit of the books, due diligence, financial tenders and pre-selection of candidates, among others.

If approved, lenders will have until September 3 to complete the process.

On November 29, 2021, the Reserve Bank of India replaced Reliance Capital’s board of directors following defaults and governance issues, and appointed Nageswara Rao Y as bankruptcy process administrator. The regulator has also filed a request for commencement of Corporate Insolvency Resolution Process (CIRP) against the company in the Mumbai Bench of the National Company Law Tribunal (NCLT). In February this year, the RBI-appointed administrator invited the EoIs to sell the assets and subsidiaries of Reliance Capital.

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