Financial creditors of Srei group non bank finance companies — Srei Infrastructure Finance (SIFL) and Srei Equipment Finance (SEFL) — could go forward with a joint insolvency proposal with the majority of the creditors on board with the idea.

At the second meeting of the committee of creditors of SEFL on November 29, the RBI appointed administrator had appraised the committee of creditors about the current status of the insolvency resolution process, the composition of the committee of creditors based on claims received and deliberated on the resolution strategy that included group resolution.

Corporate insolvency resolution process has been initiated in the two companies separately and two cases have been admitted at the Calcutta bench of the National Company Law Tribunal (NCLT) after the Reserve Bank superseded the board of the two companies on October 4.

A consolidated insolvency proceeding or group insolvency, if accepted by the NCLT, may garner more interest among potential bidders than individual companies. It will also allow the discovery of the true value of assets stacked in different companies.

According to sources, 90 per cent of the lenders have agreed to the proposal of a joint resolution. According to the Insolvency and Bankruptcy Code, any decision of the committee of creditors except otherwise provided in the code requires a minimum of 51 per cent of voting shares of financial creditors.

There are 40 financial creditors of SEFL whose claims worth Rs 31,867.75 crore have been admitted following a public announcement made on October 11.

In 2019, the then existing board of directors of the two NBFCs had approved the transfer of lending business, interest earning business and lease business of SIFL as a going concern through a slump sale to SEFL in exchange of fully paid up equity shares and SEFL became a wholly owned subsidiary of SIFL.

Several lenders and credit rating agencies had expressed concern over the transfer as the nature of advances of the two companies were structurally different.

RBI, before making its move to supersede the boards and appoint former CGM of Bank of Baroda - Rajneesh Sharma - as the administrator, had conducted a special audit of SIFL and SEFL and had advised to reassess and re-evaluate the relationship with certain entities. Adherence to prudential norms, including income recognition, asset classification and provisioning, corporate governance and related party transactions were among the concerns with the lenders.

According to resolution professionals, NCLT courts however are wary of allowing group insolvency. The Insolvency and Bankruptcy Board of India had constituted a working group to evaluate group insolvency and a framework has been recommended to facilitate insolvency resolution and liquidation of companies in a group.