This article addresses the legal issues arising from the cross-border insolvency proceedings for Jet Airways Ltd., India’s largest private airline, which maintained flight routes around the world but stopped flying on April 17, 2019. Jet Airways is the first Indian airline company to undergo cross-border insolvency proceedings under the provisions of Insolvency and Bankruptcy Code, 2016 (IBC) from India.
The main cause of the airline’s mayhem was the price-sensitive market in India, competing low-cost carriers and rising fuel prices. The tough competition from the low-cost carriers reduced the airline’s marginal costs, which drove the fares down considerably, and the airline was not able to earn enough to cover its capital expenditures. This led to the airline ultimately leaving the market.
The National Company Law Appellate Tribunal (NCLAT) is a tribunal formed by the Central Government of India under Section 410 of the Companies Act, 2013 that hears appeals against the orders passed by the National Company Law Tribunal and by the Insolvency and Bankruptcy Board of India. In a recent order, the NCLAT allowed the administrator appointed by the Noord-Holland District Court, Netherlands (the “Dutch Administrator”) to attend the meetings of committee of creditors (the “CoC”) of Jet Airways. It’s a surprising and rather welcome step from NCLAT to recognize the jurisdiction of a foreign court and directing the Dutch Administrator to work in cooperation with the resolution professional (the “RP”) appointed by the National Company Law Tribunal, Mumbai bench (“NCLTM”), to achieve maximization of the value of Jet Airways’ assets.
Jet Airways defaulted in repaying its debts to lenders, and as of early January 2020, it has a total gross debt of more than INR 360 billion, which includes domestic and foreign lenders, employees and vendors. As a result, a consortium of lenders led by the State Bank of India (collectively, the “Indian Lenders”) initiated the corporate insolvency resolution process by filing the petition with NCLTM, which was admitted by NCLTM and appointed the RP to take over the management of Jet Airways. Simultaneously, the Bankruptcy Court of Netherlands, Noord Holland District Court in Netherlands (the “Dutch Court”) passed an order of insolvency of Jet Airways in response to a petition filed by two creditors of Jet Airways claiming outstanding dues of around INR 280 crores. The Dutch Court appointed the Dutch Administrator to seize the assets of Jet Airways located in Netherlands. Upon becoming aware of the petition filed by the Indian Lenders, the Dutch Administrator filed a written submission with the NCLTM stating, among other things, that the admission of the Indian Lenders’ petition, when the insolvency process against the same debtor had already been commenced in another jurisdiction, will lead to complications and delays in the resolution of its insolvency.
NCLTM declared the order passed by the Dutch Court to be null and without effect. In an appeal filed by the Dutch Administrator against the NCLTM’s order, NCLAT stayed such order of NCLTM and ordered that the Dutch Administrator and RP should work in cooperation, made it open to the Dutch Administrator to collate the offshore claims and forward the details to the RP, and directed that a joint agreement may be executed between the RP and the Dutch Administrator with the approval of NCLTM. The Dutch Administrator assured that he will cooperate in the proceedings pending in India and will not sell or alienate the offshore assets of Jet Airways. Pursuant to the directions of the NCLAT, the RP and Dutch Administrator executed an agreement and filed the terms and conditions of the agreement for the approval of NCLTM — its Cross Border Insolvency Protocol. The draft of the Cross Border Insolvency Protocol was made final and binding with few modifications.
The Cross Border Insolvency Protocol approved for these proceedings lays out certain important principles that will give confidence to the foreign creditors and lenders of debt-ridden Indian companies. Some of the key principles set out in the Cross Border Insolvency Protocol are as follows:
- The Dutch Administrator shall be invited to participate in the meetings of the CoC as an observer, but shall not have a right to vote in such meetings;
- The aim of the protocol is to, inter alia:
- minimize the costs and maximize value of assets/recoveries for all creditors;
- facilitate information and data-sharing among the parties;
- ensure international coordination in the proceedings while respecting the separate interests of the creditors and other interested parties; and
- maintain the independent jurisdiction, sovereignty and authority of NCLTM/NCLAT and Dutch Court;
- Without consulting the RP, the Dutch Administrator shall not sell, transfer, encumber or dispose of any assets of Jet Airways or commence any judicial or nonjudicial proceedings affecting the assets of Jet Airways;
- If the Dutch Administrator sells any assets of Jet Airways, then it shall hold the sale proceeds in a separate bankruptcy account, and distribution of such proceeds shall be made in consultation with the RP;
- The Dutch Administrator shall collate all claims and forward them to the RP to verify and admit in accordance with Indian laws; and
- The RP shall forward the list of creditors and details of admitted claims under the Indian proceedings to the Dutch Administrator to provisionally recognize and admit them in accordance with Dutch law.
Though the above steps appear very positive, only time will tell whether these steps help in the speedy disposal of cross-border insolvency proceedings.
In a recent development in this matter, South American firm Synergy Group has shown interest in reviving Jet Airways. Synergy Group is understood to be carrying out due diligence on the airline and evaluating their options. NCLTM has asked Synergy Group to appear before the NCLTM to demonstrate its seriousness and bona fides to revive the debt-ridden airline. The CoC sought an extension from the Mumbai bench of the NCLTM to seek more time for due diligence by Synergy Group. On Dec. 20, 2019, the NCLTM approved the extension of Jet Airways insolvency resolution period by 90 days. Since the airline’s demise in mid-April 2019, the government temporarily allotted its airport slots to other carriers to contain the soaring airfares during the peak holiday season.