A seemingly endless bureaucratic battle has been delaying Malta-based Challenge Group's takeover of three Boeing 777-300ERs for almost two years. This situation has now led to a clear warning from the company that it will exit the business if immediate progress is not made. The dispute highlights the difficulties international investors face in resolving insolvent companies in India.
The Challenge Group had successfully bid for three decommissioned aircraft from bankrupt Indian Jet Airways. Despite a clear decision by India's Supreme Court allowing the aircraft to be sold to Ace Aviation, a subsidiary of Challenge Group, ongoing bureaucratic and legal hurdles are hampering the final takeover.
History of delays
Jet Airways, once one of India's largest airlines, ceased operations and filed for bankruptcy in April 2019. The Jalan Kalrock Consortium (JKC) later acquired the rights to buy the insolvent airline. But JKC also faces challenges, especially when it comes to reaching an agreement with creditors.
Despite a clear verdict from the Supreme Court of India on March 7, 2024, upholding earlier decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) and approving the sale to Ace Aviation, the deal remains stalled . Challenge Group Chief Investment Officer Michael Koish told CNBC TV his frustration with the lack of progress and dialogue from the oversight committee.
The Challenge Group's point of view
"We don't understand what is going on here. On one hand, the Supreme Court has taken a very clear decision to go ahead with the deal. On the other hand, nobody really wants to do anything productive. We have already travelled to India three times since last year, including last week, to finalise this deal. However, the SC has neither spoken to us nor met with us, so we approached the NCLT on May 2," Koish said.
The Challenge Group has made it clear that it is not prepared to accept the endless delays. If the supervisory committee does not make a positive decision on May 17th, the company will demand a refund of the deposit of USD 5,6 million plus interest and withdraw from the deal.
The delays reflect the complex legal and commercial challenges associated with insolvency administration in India. The Insolvency and Bankruptcy Code of India (IBC) was introduced in 2016 to expedite resolution of distressed companies and strengthen creditors' rights. However, practice shows that, particularly in the case of large and internationally significant insolvencies, lengthy legal and bureaucratic procedures often slow down business.
A decisive factor is the disputes with creditors. They have a strong interest in receiving the highest possible repayments, which often leads to conflicts with buyers who want a quick and smooth takeover.
The ongoing uncertainty surrounding the sale of the three B777-300ERs is also having an impact on the broader aviation industry. Airlines worldwide are looking for ways to expand and modernize their fleets to handle growing passenger and cargo traffic. Delays in aircraft acquisition can impact strategic plans and increase financial burdens.
The Jet Airways case highlights the challenges that international investors in India face when it comes to winding down insolvent companies. Despite a clear legal framework, bureaucratic hurdles and conflicts of interest can significantly delay the process. For the Challenge Group everything now depends on the decision of the monitoring committee on May 17th. If this decision leads to further delays, the deal risks ultimately collapsing, which could have far-reaching consequences for everyone involved.
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