Go First Files for Voluntary Insolvency Proceedings With NCLT

  What’s in today’s article?

• Why in news?
• What is National Company Law Tribunal?
• What is Voluntary Insolvency?
• News Summary: Go First files for voluntary insolvency proceedings with NCLT
• Why Air Carrier Go First Airways took this drastic step?
• What happens now?
• What does it mean for Indian aviation?

 

Why in news?

• Air Carrier Go First Airways filed for insolvency resolution proceedings in the National Company Law Tribunal. It has also suspended its flights for the next two days.

 

What is National Company Law Tribunal?

• About
  • NCLT is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature arising under the Companies Act.
  • The primary function of the NCLT is to adjudicate on matters related to corporate law, including disputes between companies and their stakeholders, as well as insolvency and bankruptcy cases.
• Functions
  • Disposal of all proceedings under the Companies Act such as arbitration, arrangements, compromise, reconstruction, and winding up of the company;
  • Adjudicating Authority for insolvency proceedings under the Insolvency and Bankruptcy Code, 2016;
  • Possess the authority to dispose of cases pending before the Board for Industrial and Financial Reconstruction (BIFR), as well as, those pending under the Sick Industrial Companies (Special Provisions) Act, 1985.
  • Can take cases pending before the Appellate Authority for Industrial and Financial Reconstruction

 

What is Voluntary Insolvency?

• In simple words, voluntary insolvency means that the company has accepted its business is insolvent.
• It is a process in which the company says it cannot pay debts and needs help from someone to sort it out.
  • When the company goes insolvent, it can proceed to voluntary liquidation.
• This process refers to the dissolution of a company with approval from shareholders and creditors of the company.
• It is a time-bound process which needs to be completed in 270 days from the date of commencement of Voluntary Liquidation.

 

News Summary: Go First files for voluntary insolvency proceedings with NCLT

• Cash-strapped carrier Go First has filed for voluntary insolvency proceedings with the NCLT.
• Go First is the first Indian carrier since Jet Airways to go to the NCLT under the Insolvency and Bankruptcy Code (IBC).
  • IBC is a comprehensive legislation introduced by the government in 2016 to deal with insolvency and bankruptcy proceedings in a time-bound and efficient manner.
  • The primary objective of the IBC is to promote entrepreneurship and facilitate the resolution of distressed assets, while balancing the interests of all stakeholders.
  • The IBC establishes several important institutions, including:
    • the Insolvency and Bankruptcy Board of India (IBBI), which regulates insolvency professionals and information utilities, and
    • the National Company Law Tribunal (NCLT), which hears and decides corporate insolvency cases.

 

Why Air Carrier Go First Airways took this drastic step?

• Unavailability of aircraft
  • The airline has been facing headwinds with the unavailability of aircraft for many quarters.
  • All its A320neo aircraft are powered by Pratt & Whitney and the engine manufacturer has had issues supplying replacement engines.
  • This resulted in the airline being forced to ground 25 aircraft.
    • This is approximately 50 per cent of its Airbus A320neo aircraft fleet as of 1 May 2023.
• Financial woes
  • Go First said has lost revenue worth ₹10,800 crore due to the grounding of close to 50 per cent of its A320neo fleet.
  • The airline has also sought compensation worth ₹8,000 crore in the Singapore International Arbitration Centre (SIAC).
    • SIAC is a leading institution for the resolution of commercial disputes through arbitration.
    • It was established in 1991 as an independent, not-for-profit organization by the Singapore Ministry of Law.
    • It aims to provide a neutral and efficient forum for the resolution of commercial disputes.
  • In case the arbitration is successful, the company will be able to address the liabilities of its creditors, small and large.

 

What happens now?

• Go First has applied to the NCLT because of the persistent issues with the engines supplied by Pratt and Whitney.
  • The engine supplier, according to the airline, has failed to repair those engines and/or provide sufficient spare leased engines.
• Once the application is admitted under NCLT, an interim resolution professional will take over and operate Go First.

 

What does it mean for Indian aviation?

• Second incident in five years
  • Go First's bankruptcy filing would be the second in five years after Jet Airways failure in April 2019 in the aviation industry.
  • Although, Jet Airways although has been rescued by Murari Lal Jalan and asset management firm Kalrock. It is yet to commence its operations in the market.
  • Hence, how much time Go First takes to hit the runway again will be keenly observed.
• Sudden availability of workforce at all levels
  • Currently, the demand for pilots was picking up and airlines were being pushed into a corner by pilot bodies for salaries and minimum flying hours guarantee.
  • In this context, an airline getting into bankruptcy resolution would mean that there is likely to be a sudden availability of workforce at all levels.
  • As a result, the airports, passengers, employees and just about everyone in the ecosystem will be impacted.

 

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Q1) What is Singapore International Arbitration Centre (SIAC)?

SIAC is a leading institution for the resolution of commercial disputes through arbitration. It was established in 1991 as an independent, not-for-profit organization by the Singapore Ministry of Law. It aims to provide a neutral and efficient forum for the resolution of commercial disputes.

 

Q2) What is Insolvency and Bankruptcy Code (IBC), 2016?

 IBC is a comprehensive legislation introduced by the government in 2016 to deal with insolvency and bankruptcy proceedings in a time-bound and efficient manner. The primary objective of the IBC is to promote entrepreneurship and facilitate the resolution of distressed assets, while balancing the interests of all stakeholders.

 

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Source: Go First files for voluntary insolvency proceedings with NCLT, blames US engine maker for woes | Ministry of Corporate Affairs | Hindustan Times | Money Control | Live Mint