Differences emerge between Reliance Capital admin, lenders over resolution of company's subsidiaries

Differences have emerged between the lenders and the RBI-appointed administrator of debt-ridden Reliance Capital Ltd (RCL) over the resolution process of the company's different subsidiaries or clusters which are on the block, sources said.

As many as 54 bids were received for the resolution of RCL and its multiple subsidiaries as of March 25, which was the last date for submission of Expressions of Interest (EoI).

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Of those, around 22 EoIs are for RCL as a company, while the rest are for individual or a combination of the company's eight subsidiaries, sources said.

RCL had offered two options to all the bidders. Under the first option, companies could bid for Reliance Capital, including its eight subsidiaries or clusters. The second option gave the companies freedom to bid for its subsidiaries, individually or in a combination, sources said.

Key clusters of RCL are Reliance General Insurance, Reliance Health Insurance, Reliance Nippon Life Insurance, Reliance Asset Reconstruction, and Reliance Securities.

Differences have emerged among the administrator, Committee of Creditors (CoC) and their respective legal advisors over the subsidiaries and their resolution process, sources said, adding that all the subsidiaries of RCL are profit-making entities, well-capitalized and management teams of these businesses are also intact.

Therefore, as per the IBC, no compliant plan can be submitted for these subsidiaries as there is no requirement of turnaround because none of these entities is facing any stress and is a well-run business, they said.

The difference of opinion between the administrator and the CoC on the methodology to be adopted for the sale of these subsidiaries is leading to a delay in the finalisation of the Request for Resolution Plan (RFRP) document, they said.

As per the original timeline, the RFRP was to be issued to all those companies who had submitted EoIs by April 5, but according to sources, the CoC and the administrator are yet to finalise the terms of the RFRP document.

The RFRP document sets the guidelines for the submission and evaluation of the resolution plan for a debtor. The RFRP has to be agreed upon between the administrator and the CoC before it is published to all prospective resolution applicants.

Differences of opinion are over whether to invite price bids for individual clusters under the second option and how to get financial bids for subsidiaries in an IBC-compliant manner.

According to sources, the CoC is intending to force consortium formation on cluster level bidders to submit a company level resolution plan, but the administrator is not in favour of this.

The key concerns of the administrator over this approach are with regard to the mechanism for formation of consortium of cluster level bidders, and who will be responsible for non-performance of those plans.

Many of the RFRP suggestions by the CoC are not compliant with the Insolvency and Bankruptcy Code (IBC) and hence leading to friction with administrator, sources said.

The Reserve Bank of India (RBI) had on November 29 last year superseded the board of Reliance Capital Ltd (RCL) in view of payment defaults and serious governance issues.

The RBI appointed Nageswara Rao Y as the administrator in relation to the Corporate Insolvency Resolution Process (CIRP) of the company.

This is the third large non-banking financial company (NBFC) against which the central bank has initiated bankruptcy proceedings under the IBC. The other two were Srei Group NBFC and Dewan Housing Finance Corporation (DHFL).

RBI subsequently filed an application for initiation of CIRP against Reliance Capital at the Mumbai bench of the National Company Law Tribunal (NCLT). There is a three-member advisory committee comprising of the ex-State Bank of India DMD, Sanjeev Nautiyal, former Axis Bank DMD Srinivasan Varadarajan and former MD and CEO of Tata Capital, Praveen P Kadle.

In February this year, the RBI-appointed administrator had invited expressions of interest (EoIs) for the sale of Reliance Capital.