Last week, the Competition Commission of India completed assessment of the first insolvency case filed with it. And while the speedy decision is heartening for the time-bound insolvency process it has sparked a debate on whether the filing with the CCI and its decision are premature.
The debate centers around exactly what constitutes a trigger for filing with the CCI in insolvency cases. Ordinarily - any merger or acquisition beyond a certain prescribed threshold has to be filed with the CCI to assess the impact on competition. Such a filing has to be made within 30 days of execution of any agreement or other document pertaining to the acquisition.
But unlike conventional mergers and acquisitions, insolvencies under the Insolvency and Bankruptcy Code, 2016, are a multi-step process involving bid filing, negotiations and acceptance by the Committee of Creditors. Hence the CCI’s decision in this case has experts divided.
First the back story: Rajputana properties- a wholly owned subsidiary of Dalmia Bharat Ltd.- had filed with the CCI for its proposed acquisition of 80 percent equity stake in Binani Cements Ltd. which is currently facing insolvency proceedings. The regulator completed its assessment in 13 days saying the proposed acquisition will not cause any appreciable adverse effect on competition.
But, here’s the twist.
Binani Cements has another suitor – UltraTech Cement Ltd. - which has also made a filing with the CCI for its bid and is awaiting approval. What makes matters interesting is that Committee of Creditors of Binani Cement is yet to sign off on Dalmia’s resolution plan and UltraTech is contesting the rejection of its bid by the CoC.
“Any filing ahead of having a binding agreement between parties is a premature filing,” said Avaantika Kakkar, competition partner at law firm Khaitan & Co.
“Wherever there is a binding offer and a clear intention to acquire, then that should be enough trigger to go to the CCI,” countered Karan Chandhiok of Chandhiok & Associates.
Here are edited excerpts of a discussion on BloombergQuint’s weekly law and policy show - The Fineprint.
Given the strict timelines under the insolvency code, while it’s heartening to see the regulator complete its assessment in 13 days, do you believe that the parties made a premature filing considering that the Creditors’ Committee is yet to sign-off on the final plan?
Kakkar: I will answer that question in the context of the way the law reads today. Any filing ahead of having a binding agreement between parties is a premature filing, irrespective of whether or not it is made under the system of the Bankruptcy Code or outside of it. It is less a question of exception here unless it is in writing and unless there is clarification there from the CCI saying it is going to receive these filings. I think the notifications were premature.
What will qualify as a binding agreement for insolvency cases?
Chandhiok: In most IBC processes- where they have asked for a resolution plan to be filed- they have said that you put in the binding document and in case you digress from that binding document, there could be strong penalties in terms of bank guarantees which will be invoked. There is clear intention, as far as the acquirers are concerned, to go and acquire those targets which may be subject matter of insolvency on today’s date. Wherever there is a binding offer and a clear intention to acquire, then that should be enough trigger to go to the CCI.
When you look at the law as it stands today and the way I read it, it says that any document or agreement that conveys an intention to acquire should be the trigger. It also depends on how the resolution professionals are running the process today. In some processes, after the bidder has been accepted, there is a Letter of Intent which is signed between the parties which could be the trigger. If there isn’t, then the binding bid itself should be the trigger because this is an important aspect when we want to harmonise both the Competition Act and the IBC. You have 270 days under the IBC which is the outer marker within which resolution plan needs to be finalised. When you are going to NCLT for approval and that NCLT order is subject to the CCI’s approval and the approval doesn’t come, what happens?
Suppose there is a resolution applicant who comes in and he is disapproved by the CCI and the deal is blocked. Then can you re-start the clock under IBC? So, the best way will be to go in, wherever possible, to the CCI.
Further, the difference between IBC cases and regular term-sheets is that resolution plans under IBC are fairly detailed- you know what you’re going to do, how much equity you are going to infuse, how much haircut you’re giving, so on and so forth. These are big meaty documents. What the structure would be post the proposed resolution plan is fairly certain at that stage.
What is the downside if these are in fact pre-mature filings in your assessment?
Kakkar: In the absence of the CCI specifically allowing for this exception, I think it is a premature filing. The Binani Cement precedence opens up the floodgates for early filing. I don’t see any other acquirer, in a similar situation where they have a definitive intention to make an acquisition, not going in. The CCI has, in at least one previous case, rejected a filing saying it is premature.
Look at these cases. You have Dalmia filing the Form I; you have UltraTech filing a Form II. UltraTech is signaling the world that its case is, perhaps, more complicated because it has filed the Form II and Dalmia is signaling that it has a simpler case. What would you do if you are the Committee of Creditors? Are you not looking at a quick settlement? I think the emphasis is always on time which is why parties went in early and one of them has come out sooner than anticipated. So, the repercussions could be many. I don’t think they have been clearly thought through by either the Committee of Creditors or the CCI or the parties themselves.
Note: Parties, notifying their transaction to the CCI, can do so either through Form I or Form II. Form I is a shorter version with the names of parties, nature of business etc and Form II is a more detailed version which is filed if the parties are involved in activities relating to identical, similar or substitutable goods etc.
Should we assume that the regulator will assess the eligibility, from the competition law point of view, of all the bidders?
Chandhiok: It is creating a race between bidders to go to the CCI first and have its case or rather its combination determined first. If there is analysis done by the CCI on the bid and there is determination of market share, determination of relevant market, etc, that will be the same assessment that the CCI will be taking for UltraTech as well. Let’s assume that UltraTech has a different view of the market as compared to what Dalmia did. That will create some friction between CCI’s previous order and subsequent assessment that the regulator is undertaking.
If there are multiple bidders like multiple takeover actions, multiple hostile bids that could take place, the CCI will have to assess each one of them. It is important for the CCI, and the International Competition Network also recommends this in its merger guidelines, whenever there is a bankruptcy or an insolvency process, there should be an accelerated view of the case and you have to make sure that you meet the timelines under the IBC.
Second, when you are assessing thresholds as to whether or not I am going to accept the filing is to see are these speculative filings or is there a good intention to eventually close the transaction?
The CCI will have to look at these parameters when multiple bidders come to them for assessment.
Watch the full discussion on The Fineprint here...
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