MUMBAI: Lenders to Kingfisher Airlines have stepped in to invoke the personal guarantee of Vijay Mallya as well as UB Holdings' corporate guarantee on borrowings by the grounded airline. State Bank of India (SBI), on behalf of the consortium of lenders, recently sent letters to convey their decision on the invocation of guarantees. What the banks do next and the legal proceedings that follow could emerge aa benchmark case in Corporate India. Few high-profile promoters in the country have had personal guarantees invoked by banks.
If a guarantor fails to pay up after the invocation and within the time given in successive notices, creditors consider this as an act of insolvency.
"A few days ago, the State Bank Bangalore office, on behalf of itself and the member banks, sent the invocation letters through their lawyers," a person familiar with the development told ET. SBI officials were unavailable for comment.
A Kingfisher spokesman, responding to an email query, said, "We have not received any communication from SBI." SBI is the lead lender among a group of 17 banks whose combined outstanding to Kingfisher is more than Rs 7,500 crore.
Legal circles believe that Mallya and the UB Group may move the court while banks will consider various options like initiating recovering proceedings in the Debt Recovering Tribunal, and exercising their rights under the security enforcement law with the Kingfisher account categorised as a non-performing asset (NPA). An account is identified as an NPA when a borrower fails to service loan interest or principal installment for 90 days.
But a stronger course of action to pressurise a borrower following guarantee invocation could be to file an insolvency petition in the court. Once the court declares the party concerned as "insolvent", banks can begin necessary action to seize assets.
Under such circumstances, banks can seize all personal assets of the person who furnished the guarantee as well as target the assets of the corporate guarantor. But the legal process can take years. Technically, creditors can even seize assets located outside the country.
But Indian businessmen, particularly those who have NRI status, often ring-fence their offshore assets in a maze of trust structures. Banks have been selling pledged shares of Mallya-promoted companies like United Spirits and Mangalore Chemicals & Fertilisers to recover a slice of their losses. After the Bombay High Court declined to give a stay on the selloff, banks sold more shares this week.
The guarantee invocation process and moving the court under the enforcement act can happen parallel with the sale of pledged shares (which are governed under separate contracts.)
According to a senior lawyer, banks can even move the court to restrain Mallya from transferring his interests in other assets. Banks are running out of patience with Kingfisher Airlines after it failed to come up with any concrete plan to revive operations and repay dues.
http://articles.economictimes.indiatimes.com/2013-04-06/news/38327431_1_kingfisher-airlines-non-performing-asset-corporate-guarantee
If a guarantor fails to pay up after the invocation and within the time given in successive notices, creditors consider this as an act of insolvency.
"A few days ago, the State Bank Bangalore office, on behalf of itself and the member banks, sent the invocation letters through their lawyers," a person familiar with the development told ET. SBI officials were unavailable for comment.
A Kingfisher spokesman, responding to an email query, said, "We have not received any communication from SBI." SBI is the lead lender among a group of 17 banks whose combined outstanding to Kingfisher is more than Rs 7,500 crore.
Legal circles believe that Mallya and the UB Group may move the court while banks will consider various options like initiating recovering proceedings in the Debt Recovering Tribunal, and exercising their rights under the security enforcement law with the Kingfisher account categorised as a non-performing asset (NPA). An account is identified as an NPA when a borrower fails to service loan interest or principal installment for 90 days.
But a stronger course of action to pressurise a borrower following guarantee invocation could be to file an insolvency petition in the court. Once the court declares the party concerned as "insolvent", banks can begin necessary action to seize assets.
Under such circumstances, banks can seize all personal assets of the person who furnished the guarantee as well as target the assets of the corporate guarantor. But the legal process can take years. Technically, creditors can even seize assets located outside the country.
But Indian businessmen, particularly those who have NRI status, often ring-fence their offshore assets in a maze of trust structures. Banks have been selling pledged shares of Mallya-promoted companies like United Spirits and Mangalore Chemicals & Fertilisers to recover a slice of their losses. After the Bombay High Court declined to give a stay on the selloff, banks sold more shares this week.
The guarantee invocation process and moving the court under the enforcement act can happen parallel with the sale of pledged shares (which are governed under separate contracts.)
According to a senior lawyer, banks can even move the court to restrain Mallya from transferring his interests in other assets. Banks are running out of patience with Kingfisher Airlines after it failed to come up with any concrete plan to revive operations and repay dues.
http://articles.economictimes.indiatimes.com/2013-04-06/news/38327431_1_kingfisher-airlines-non-performing-asset-corporate-guarantee
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