I see few cases where, despite huge debt that cannot be recovered from existing assets, equity was not written off to zero, and subsequently, equity shareholders were rewarded exceptionally well.
An example – Imagica that was resolved recently. In this case lenders agreed to write off 50% debt, the company issued shares to new promoters and the cash infused was utilized to pay creditors. There was massive dilution in the process (~70% dilution for existing shareholders), however, point to note that despite debt that cannot be offset by asset sale, equity was not completely wiped out and subsequently equity shareholders were rewarded exceptionally well.
ET link – equity: Banks sitting on huge gains as Imagicaa rides a turnaround – The Economic Times
This settlement was out of NCLT/IBC. It looks like creditors like to settling the bankruptcy cases outside NCLT if possible, probably because its quicker from recovery perspective.
I am trying to understand when this kind of scenario can play out? Any pointers where we can read and understand nitty gritty of bankruptcy resolution process…
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