Creditors in India hire consultants for bankruptcy proceedings
Creditors in India, including the country’s biggest lender State Bank of India (SBI), have hired top consultancy firms such as Deloitte, EY, KPMG and PwC among others, on lucrative deals in order to assist with insolvency proceedings, following loan defaults of up to Rs. 2.5 Lakh Crore (2.5 trillion), built up by twelve companies.
Reports have recently emerged from the Reserve Bank of India, suggesting just a dozen companies were responsible for 25% of the total Non-Performing Assets (a cumulative figure of Rs. 10 Trillion) on local-lender books. The companies have since been referred to the National Company Law Tribunal (NCLT) in order to recover the funds, with the help of Resolution Professionals (RPs). After a month of interim trials, the creditors, including SBI, have settled on the services of consultancy firms such as KPMG, EY, PwC, Alvarez & Marsal, and BDO as their elected RPs.
The RPs are set to take over the daily operations of defaulting companies once the existing boards have been dissolved. Among the firms, Deloitte is responsible for the reorganisation of defaulter-company Bhushan Steel, while fellow Big Four members EY will do the same for Amtek Auto, and PwC for the Electrosteel Steels company. BDO India will be RP for Jyoti structures. Both EY and PwC have teams of approximately 100 executives to oversee the restructuring process, and are looking to expand extensively in the near future, with EY aiming to hire 200 people in the following months and PwC an additional 100. BDO India has a similar team size but does not have plans for expansion, preferring to optimise the deployed resources.
The process of restructuring is estimated to take a period of six to nine months depending on “the size of the account and complexity involved.” In return for their services, the consulting firms are allegedly set to earn upwards of Rs. 1 Crore (10 million) per month, which is more than most Indian CEOs make on a monthly basis. As reported by the Economic Times in India, only 15 CEOs of the top 100 listed companies in India earn more than the monthly compensation charged by the consultancy firms, albeit for the entire team in action.
Passing comment on the proceedings, the national Leader for Restructuring Services of EY India, Abizer Diwanji, commented, “The scope of work includes taking over the operations and responsibility of running the company and select key management. Thereafter, information is provided and bids would be invited to be analysed and presented to the committee of creditors.”
Firms such as PwC and KPMG are well versed with the practices of insolvency and corporate recovery, having even been awarded multiple Insolvency Rescue Awards in the past – prestigious additions to the firms’ CVs, which arguably provides a further explanation for their selection for this task, along with their sizeable compensation packages.
