The National Company Law Tribunal (NCLT) at Delhi on Wednesday admitted an application by Go First Airlines seeking initiation of voluntary insolvency proceedings.
The Tribunal directed the company's suspended board of directors to co-operate with the interim resolution professional to ensure its functioning.
Bar & Bench's Neha Joshi spoke to legal and technical experts in the field to find out what lies ahead for the company, the impending corporate resolution insolvency process (CIRP) and the effect of this order.
Arrival on time: The NCLT's speedy verdict
Rajesh Sharma, former technical member of NCLT who had presided over the Jet Airways hearings, praised the Principal Bench for its quick verdict in the matter, and for upholding the objective of the Insolvency and Bankruptcy Code.
"I must compliment the bench for a swift decision of admitting the complaint to insolvency. If I am not wrong, the application was filed on May 2 and within three working days, they have admitted the company to insolvency, which is faster than the statutory period of 14 days time prescribed in law," Sharma said.
He elaborated that passing orders swiftly was the need of the hour.
"When someone files for insolvency, the first thing that happens is that the creditors, bankers, the suppliers, etc, they withdraw support. In the Go Airlines case, the creditors, including the aircraft lessors, had already started demanding. A swift admission for insolvency was required," he explained.
Clearing the runway for the impending CIRP
Ajay Monga, Partner at SNG & Partners, stated that the Committee of Creditors will now aim to revive the airline company after the resolution professional takes over the management.
"The legal process had paved the way for investors/companies interested in taking over Go Airlines to infuse funds. The direction to the suspended directors to co-operate would be an encouraging factor for the investors to take over the company with its existing employee base," Monga said.
Ashish Chhawchharia, Partner & Head - Restructuring Services at Grant Thornton Bharat, acted as an interim resolution professional (IRP) to Jet Airways for its IBC proceedings. He said the CIRP for Go First Airlines would now begin and take its normal course.
"The process is similar to what Jet Airways went through. Of course, Go First is not as big as Jet Airways.The IRP will make a public announcement and invite claims from all creditors including banks, lessors, suppliers, employees and workmen and affected passengers. Thereafter, the Committee of Creditors will be constituted within 30 days and the process will move forward," he elaborated.
When asked how long will the process take, Chhawchharia said that the entire CIRP process would depend on how fast the CoC and resolution professional can make progress towards expression of interest and inviting resolution plans. Reviving and managing operations of the company was required, he added.
Sharma suggested that the RP ought to try to conclude the CIRP in six months.
"Ideally speaking, with the type of industry (aviation) it is and the uncertainty, time is of the essence. And if the resolution professional is able to resolve the company in six months, nothing like that," he said.
Dealing with turbulence: Struggles surrounding resolution of companies in the aviation industry
Monga opined that the capital-intensive aviation industry continues to struggle in India.
He said that Go Airlines would have to resolve its dispute with the American engine supplier Pratt & Whitney (P&W) in order to reduce its struggle for resolution.
"Unless a prospective takeover happens, the lenders may not be willing to increase their exposure in the struggling airlines. For an interested resolution applicant, the replacement of engines by P&W remains a key factor as the grounded aircrafts needs to become operational first and airborne, for revival of the company. At this stage, there are too many strings that need to be tied up to bring the airline back to its feet," Monga explained.
Ravi Kini, Partner at MV Kini, jas more than two decades of practice in aviation law. In his opinion, CIRP was a fairly transparent process and the lessors will be able to get back their money without much of a hassle.
"This process is tested and it has worked with Jet Airways," he added.
On a more sobering note, he added that bankruptcies affect an operational creditor the most, who mostly does not get his money back.
"If there are such frequent bankruptcies in the aviation industry, it is not a very good sign for the industry. The immediate effect will be seen on the operational creditor. Most of them get zero. The employees do not get paid," he said.
Kini added that there were specific service providers who only catered to the airline industry, like a flight caterer, ground handler, etc. He suggested that with such frequent cases, government intervention was required to look into the reason behind so many bankruptcies.
"There seems to be a structural issue. It cannot be that there is only one airline that is running successful," Kini said.
Kini went on to say that the NCLT order will have immediate effects and long-term effects.
"Immediately, some other airline may get more pilots, trained crew. But in the long term, they may find it difficult. But for lessors, foreign lendors, they may start getting worried about the Indian market," he estimated.
First flight out: An unprecedented move to initiate voluntary insolvency
Advocate Nausher Kohli, a regular practitioner before the NCLT Mumbai, said that the admission of Go First Airlines' insolvency was perhaps the first time a national carrier has approached the NCLT on its own instead of a creditor moving an application.
"This is the second case involving an airline after the matter of Jet Airways. In that case, the resolution process commenced on the creditors' application. Go Airlines' resolution process is likely to be an expeditious arrival of a resolution for its debt," Kohli added.
Another difference between the Jet Airways and Go Airlines cases, as highlighted by Sharma, was that the former came for insolvency after a considerable delay.
"In Go First Airlines, their management came to know they would be bankrupt, and they approached for insolvency. The earlier the steps are taken, the better. I hope Go First Airlines continues in full swing. It will be a role model (to other companies) if they continue," Sharma expressed.
Kini speculated that the stigma of bankruptcy was gradually reducing and businesses were beginning to look at the IBC as a means to get rid of liabilities.
"Go First Airlines case is basically saying, 'if there is a failure in the business then approach NCLT for relief'. In such scenarios, one may see more of such companies seeking self-declared bankruptcy," he predicted.
Kohli agreed that this case could promote and aid companies to approach the NCLT on their own instead of waiting for the creditors to come.
"So far, insolvency applications filed by companies by themselves are far fewer than those filed by financial or operational creditors. This decision should promote cash-strapped companies seeking resolution under the IBC to approach the NCLT themselves," Kohli remarked.
Keeping the flight crew together
Kohli stated that since Go First Airlines was expected to continue its affairs, its employees will continue to be engaged with the company.
"Go Airlines may not have much concern considering the company might continue its work as the IRP has been ordered to continue the affairs. If that is so, the employees will continue to be engaged by the airlines during the insolvency resolution process. This is also in line with the intent of the IBC which is to ensure that the debtor company continues its operations as a going concern during CIRP," he said.
Advocate Jane Cox, who has previously represented employees of airline companies (including Jet Airways) explained that the IBC did not provide for relief to employees.
She stated that unlike the eariler Companies Act, the new regime of the IBC provider fewer reliefs.
However, she emphasized that there was a Supreme Court judgment of May 2, 2023 in the case of Moser Baer Karamchari Union, which clarified that employees have to be paid provident fund and gratuity.
Having said so, she opined that the best bet for the employees was to raise claims before the CoC.