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DHFL Case: New Round of Voting Started; Unsecured FCs To Get 40% of Their Claimed Amounts
Moneylife Digital Team 07 July 2021
Investor Interest
The committee of creditors (CoC) of Dewan Housing Finance Corporation Ltd (DHFL) has started a new round of voting on yet another proposed new distribution mechanism. The latest round of voting started at 8am on  Wednesday (7th July) morning and will end at 5pm on Thursday (8th July) evening.
 
As per the latest proposal, unsecured financial creditors (FCs) (which also includes Axis Bank, YES Bank and L&T Finance) will be paid 40% of their claimed amount. This recovery percentage is similar to the recovery of  the secured FCs who voted in favour of the January 2021 resolution plan.
 
According to the new resolution put for voting:
 
Paragraph VI (a) of the Distribution Mechanism shall stand deleted and be replaced by the below paragraph: VI (a) After the payments under paragraphs (I) to (V) above have been made or set aside (as applicable), the Unsecured FCs shall be paid the Resolution Plan Payments, in proportion of their admitted claim, which amount shall be equal to approximately 40% of their respective admitted claims, similar to the recovery of the Secured FCs (who have voted in favour of the Resolution Plan).
 
The move comes after the National Company Law Tribunal (NCLT) held that the prayer sought by Axis Bank, YES Bank and L&T Finance should be merged with the resolution plan approval order which came on 7th June. It had also directed the CoC of DHFL 'to reconsider the distribution mechanism' for the applicants 'as per its commercial wisdom'.
The CoC met on 5th July to discuss the proposal. All other provisions of the original redistribution plan  have been kept the same.
 
NCD-holders and fixed deposit-holders are requested to go through the documents and vote carefully on the resolution. DHFL is the first financial entity to be sent to NCLT and, hence, whatever happens in the case could be held as a precedent later. 
 
“Between the approved distribution mechanism and the current proposed distribution mechanism, the incremental contribution by large secured FCs will be about Rs1,370 crore which is 3.64 per cent of the Resolution Plan Value,” the proposal says. 
 
Interestingly, while unsecured creditors (which includes Axis Bank, YES Bank and L&T Finance which had approached NCLT with the prayer petition) stand to recover 43%, recovery for fixed deposit-holders (who are also unsecured in a way) would remain at about 23%. Most fixed deposits are held by middle class and senior citizens who had invested in the the company FDs in the hope of gaining extra interest. They are expected to vote against the latest proposal on the distribution mechanism.
 
Moneylife had pointed out earlier, that the proposal to offer similar or higher recovery to unsecured creditors while secured creditors suffer is worrying. This is making a mockery of the law protecting secured NCD-holders. The earlier resolution which had put forth a similar proposal was vehemently rejected by the stakeholders in June. 
 
Last week, the NCLT rejected a plea by US-based Prudential International Insurance Holdings Ltd, challenging an NCLT order approving the bid of the Piramal Group. Former promoter Mr Wadhawan is said to be planning similar action. Meanwhile, an executive team headed by Jairam Sridharan of Piramal Retail Finance has been set up on the directions of the NCLT to effect the transfer of DHFL to its acquirer, Piramal Capital and Housing Finance Ltd (PCHFL).
 
Piramal Capital has already put in place a team of around 30 people to facilitate the ongoing merger exercise with DHFL and is looking to implement the resolution plan quickly. It is also in the process of obtaining approval from the Insurance Regulatory and Development Authority of India (IRDAI).
 
 
Comments
Kamal Garg
4 years ago
(1) This article is late by at least one day, if not by two days. Because, the legal language of the proposal is difficult to understand by a common investor/vote-participant, and therefore, we all expect from MoneyLife to elaborate on the implications of the proposal before the voting started, which you have done now. All vote-participants should give "dissent" vote on this proposal.
(2) I have been vociferously saying that even one single paisa from all future "recoveries" should not go to Piramals, and all such future recoveries should be distributed equitably amongst secured NCDs simply because they are secured NCD holders and rank 'first' among all classes of debtors.
Reply
r_ashok41
4 years ago
I think there should be a clause that as and when future money is recovered then payment should be done for NCD and depositors also and not given in total to the new owners.Also small investors should be given the amount in full since it is their hard earned money which they have kept there.
Reply
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