Lenders to troubled Dewan Housing Finance Ltd (DHFL) are looking at a repayment strategy for 55,000 fixed deposit holders as part of a resolution plan.
According to the minutes of a meeting of the Committee of Creditors (CoC) held last week, the lenders are looking at various scenarios to distribute the proceeds of the funds received from the new investor. This includes distribution under the waterfall mechanism or under pari-passu distribution mechanism or setting aside some amount of the outstanding claims for small investors.
According to the waterfall mechanism under the Insolvency and Bankruptcy Code (IBC), secured creditors have to be paid fully before any payments can be made to unsecured financial creditors, who in turn, have priority over operational creditors. The pari passu distribution mechanism gives equal priority to all creditors, and the proceeds are distributed in proportion to their debt.
Most lenders, however, favour a distribution plan where the CoC sets aside 5% of the claim amount for small investors (with investment up to ₹10 lakh), unsecured financial creditors and operational creditors, with the remaining resolution amount being distributed across secured creditors under the waterfall mechanism. The consensus of all CoC members is not final as lenders remain divided over how much amount should be allocated to unsecured financial creditors which represents a small portion of CoC voting share.
Catalyst Trusteeship Ltd (CTL), which represents retail bondholders of DHFL, said that unsecured financial creditors are unlikely to oppose the distribution mechanism as there is some amount set aside for them. “The legal counsel further discussed certain legal precedents with respect to distribution mechanism in other IBC cases and mentioned that Section 53 of the Code provides a base principle for the manner of distribution, but CoC in its commercial wisdom and discretion can provide for a different manner of distribution as long as the key legal principle of equity is not violated and other mandatory contents of Section 30 of the Code are complied with,” according to the minutes of the meeting, a copy of which was reviewed by Mint.
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