Dhanuka Resolution Plan Gets Rolling; Orchid Pharma Lenders To Get 32% Recovery

The monitoring committee attached to the insolvency resolution process of Chennai-based Orchid Pharma has implemented the approved resolution plan by Gurgaon-based Dhanuka Laboratories, which would fetch the secured lenders close to 32.3% recovery of their dues. Besides, the lenders will also receive around 4,08,164 equity shares of Orchid Pharma, at an issue price of Rs 10 each for part of their debt, sources in the know told FE.

According to a regulatory filing by Orchid Pharma on Tuesday, the paid-up equity share capital of the company has been reduced from Rs 88.96 crore to Rs 40.81 crore, with cancellation of 88.56 million equity shares of Rs 10 each. A meeting of the monitoring committee also approved issue of 0% non-convertible, non-marketable, cumulative redeemable debentures of value of Rs 3,650 crore to Dhanuka Pharmaceuticals — a special purpose vehicle formed by Dhanuka Laboratories — for subsuming equivalent outstanding debt of Orchid Pharma by the SPV for consideration other than cash.

Sources said that the lenders had been able to recover around Rs 1,106.50 crore out of the total admitted debt of around Rs 3,526.74 crore, apart from the 1% shares. Dhanuka will hold around 98% shares following the deal and may have to look for dilution of shares as per the relevant regulation.

The 4,08,164 equity shares are to be issued to 22 secured financial creditors depending upon their exposure in the company, and State Bank of India will get 72,915 equity shares, while Bank of India will get 41,228 shares and Union Bank of India and Allahabad Bank will receive around 28,000-29,000 shares each.

Dhanuka’s resolution plan was finally taken for implementation after the Supreme Court had set aside the National Company Law Appellate Tribunal (NCLAT) order that nullified the Chennai bench of NCLT’s approval of a resolution plan by Gurgaon-based Dhanuka Laboratories for the debt-ridden company Orchid Pharma.

The NCLAT in its November 13, 2019, judgement had set aside the Chennai NCLT order that approved the resolution plan by Dhanuka, on the ground that the amount offered in favour of stakeholders including the financial creditors and the operational creditors, was much less than the liquidation value. The NCLAT had also remitted back the case to the NCLT for fresh consideration under the relevant laws.

A Supreme Court bench of Justices Rohinton Fali Nariman and S Ravindra Bhat, in its February 28, 2020 order said, as a matter of law, this judgement (of the NCLAT) has to be set aside in view of its recent judgement where it had categorically held that no provision in the Insolvency and Bankruptcy Code or Regulations has been brought to the court’s notice, under which the bid of any resolution applicant has to match liquidation value arrived at in the manner provided in the relevant regulations. “Accordingly, the appeal is allowed and the judgment of the NCLAT is set aside,” said the order.

SBI, a key member in the committee of creditors (CoC), had filed the appeal before the Supreme Court seeking setting aside the NCLAT order, alleging that the appellate tribunal erred in overriding the commercial wisdom of the CoC. This was the second attempt to bring in an investor to save Orchid Pharma. Previously, the NCLT had nullified a resolution plan by US-based Ingen Capital after it was approved, post the investor allegedly failing in bringing in money as per the norms.

Accord Life Spec, a failed resolution applicant, had moved the NCLAT against the NCLT order that approved the resolution plan by Dhanuka Laboratories. In its appeal at the NCLAT, Accord alleged that Dhanuka’s actual resolution value proposed was Rs 570 crore as against a liquidation value of Rs 1,309 crore.

The NCLT had approved the resolution plan by Dhanuka on June 25, 2019, rejecting a plea against it by Accord Life Spec which cited inadequate mandatory vote share of the CoC. The earlier resolution plan by Ingen, which was approved by the NCLT in the first attempt and later annulled by the tribunal, was for a total of Rs 1,490 crore.

Rejecting Dhanuka’s resolution plan, the NCLAT bench had observed that infusion of fund for maximisation of the assets of the corporate debtor (Orchid Pharma) cannot be counted for the purpose of the amount, which is being kept for distribution amongst the stakeholders, including the financial creditors and operational creditors. If it is less than the liquidation value, such a plan cannot be upheld, being against the object of the I&B Code and Section 30(2) of the said code, the apex tribunal had contended.-Financial Express

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