Query d): What is the probability that legal proceeding will be stayed if the Borrower files a writ petition? How long will it take to vacate the writ petition? What is the prospect of recovering our dues through litigation against the Borrower?
Response: If any interim order of the Artha Rin Adalat is challenged by any party of the Artha Rin Suit in the Higher Court, i.e. High Court Division of the Supreme Court, then the High Court may, among other orders, issue an order staying the proceedings of the Artha Rin Suit and thereafter disposal of the Artha Rin Suit will depend on disposal of the matter in the High Court. It is very difficult to predict the time limit for disposal of matters in the High Court because of the pending backlog of cases. Usually, it takes 6 months to – 2 years for disposal of the High Court matter. Further, if the judgment/order of the High Court is challenged in the Appellate Division, then disposal of the matter will be further prolonged.
Prospect of recovery of dues of SCB from the Borrower depends on, inter alia, the nature and quality of the securities/collateral executed by the Borrower in favour of SCB. Provided that the said securities are sufficient to cover the liabilities of the Borrower, the prospect of recovery of dues of SCB through litigation in the Artha Rin Adalat is high.
Query e): In case of liquidation of the business how will be the sales proceeds of the mortgaged land, plant and machinery be distributed among all the lenders
Response: Liquidation of the Borrower may occur in any of the following two ways:
1) Winding up, or
Winding Up: Winding up of the Borrower may be in the following ways –
1) By the Court, or
2) Voluntarily, or
3) Subject to the supervision of the Court.
With regard to Winding Up by the Court, according to Section 267(1) as soon as may be after making a winding up order, the Court shall cause the assets of the company to be collected and applied in discharge of its liabilities. This Section has to be read with Rule 148 of the Companies Rules 2000 according to which the duties imposed on the Court by Section 267(1) of the Companies Act in a winding up by the Court, with regard to the collection of the assets of the company, and the application of the assets in discharge of the company’s liabilities, shall be discharged by the Official Liquidator as an officer of the Court subject to the control of the judge. Although subject to the discretion of the judge, generally the judge will apply the assets of the Borrower by taking into consideration the provisions contained in the Pari Pasu Security Sharing Agreement.
With regard to Voluntary Winding Up, according to section 307 of the Companies Act, subject to preferential payments under the Act, the property of a company shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject, to such application, shall unless the articles otherwise provide, be distributed among the members according to their rights and interested in the company. Even in Voluntary Winding Up, the liquidator will apply the assets of the Borrower by taking into consideration the provisions contained in the Pari Pasu Security Sharing Agreement.
With regard to Winding Up subject to the supervision of the Court, the liquidator may, subject to any restrictions imposed by the Court, exercise all powers, without the sanction or intervention of the Court, in the same manner as if the company were being wound up altogether voluntarily.
Bankruptcy: According to Section 75 (1) of the Bankruptcy Act 1997, at the time of distribution of the distributable assets, before payment of the distributable assets to the creditors (i.e. inter alia lenders), payment has to be made in relation to the necessary expenses incurred by the Receiver as administrative expenses and thereafter, the Receiver’s fee has to be paid and then the other distributable assets shall be paid in the following order of priority:
a) All taxes and other debts of a like nature due to the Government;
b) All wages or salaries, not exceeding Tk. 2000 due to any clerk, servant, labourer or workman in respect of services rendered to the debtor during the period of 6 months immediately before the date of filing the plaint;
c) All bank debts;
d) All unsecured claim;
e) Any subordinated claim;
In the present case, the syndicated Term Loan will fall under bank debt.
According to Section 75 (2) of the Bankruptcy Act, after payment of the debts stated above if the distributable asset is not sufficient to pay all the bank debts, then payments in relation to the bank debts will have to be reduced in such a way that the payments to be made in respect of the unsecured claim is at least 50% of payments to be made in relation to the bank debts.
According to Section 75 (3) of the Bankruptcy Act, the debts or claims of each class specified in sub-section (1) above shall rank equally between themselves, and shall be paid in full, unless the distributable asset is insufficient to meet them, and if the distributable asset is insufficient, the debts or claims of the same class shall be reduced proportionately.
According to Section 75 (8) of the Bankruptcy Act, where there is any surplus after payment of all expense, fees, debts and claims, it shall be applied in payment of interest, calculated from the date on which the debtor is adjudged bankrupt, at a rate not exceeding six percent per annum on all debts.
Therefore in a Bankruptcy proceeding, the receiver, when making payment in relation to the bank debts, will apply the assets of the Borrower and pay all the lenders in Pari Pasu pro rata basis.