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Employee buyouts or participatory managements are not commonplace in India, but the model could be explored for some companies hauled before insolvency courts, where affected staff-members at units without hopes of a revival have urged tribunals to liquidate the entities as ‘going concerns.’
“There is a growing tendency among employees and workers to save their companies going into liquidation,” said Manoj Kumar, partner, M&A-insolvency, Corporate Professionals. “It is a question of livelihood as they all will lose their jobs. This is the first time under IBC that we are witnessing such moves to save companies. Employees are seen requesting tribunals to order liquidation as on-going institution.”
Gujarat NRE Coke is a classic example. On January 11, the National Company Law Tribunal's (NCLT) Kolkata Chapter ordered liquidation of Gujarat NRE Coke, a company that failed to resolve the Rs 4,900-crore default case. But for the first time under the Insolvency and Bankruptcy Code (IBC), the court mandated to liquidate the company as an “on-going concern”, which is aimed at protecting about 10,000 people.
“It is further stated that by closing the company and by discharging 1,178 employees, their families, numerous small vendors, suppliers, contractors, job workers and transporters of the company… totaling about 10,000 people will also be affected,” Jinan K R and V P Singh, NCLT Kolkata said. “A going concern” or “a slump sale of the assets” enables the sale of business of the company including all its assets and properties. The business of the company is continued during the liquidation process by the liquidator. There are many such small companies where employees and unions are seeking legal advice to submit a resolution plan.
Delhi-based Clutch Auto, too, received a resolution plan from employee unions, but it was disqualified because as a group, it lacked the minimum net-worth criterion of Rs 10 crore. Now, the promoter is expected to file liquidation as “an on-going concern” after the clock ran out. The company is said to have received about Rs 470 crore creditors’ claim. There is another Ludhiana-based company where employees are planning to put up a resolution plan. “Employees of companies under insolvency resolution are waking up to the threat of job loss,” said Munish K Sharma, a Delhi-based Insolvency Professional.