FE: Educomp unit’s insolvency resolution: Founder, lenders trade charges

13 June 2019: As the insolvency process of Educomp Infrastructure and School Management (EISML), a subsidiary of Educomp Solutions (ESL), is on at the NCLT, some members of the committee of creditors (CoC) have raised serious questions over the role of ESL founder Shantanu Prakash, who claims that the charges are baseless and the resolution professional, Ashwini Mehra, is undermining the process.

Online education services provider ESL is the holding company of EISML, which provides various support services to schools. EISML availed loans of around `900 crore from eight banks. Its corporate insolvency resolution process (CIRP) is underway at the National Company Law Tribunal (NCLT) bench at Chandigarh.

A top official with one of the lenders said EISML is providing services to 24 schools operated through some 14 trusts. Its standalone revenue fell from `83.72 crore in FY14 to `21.20 crore in FY18 due to changes in revenue stream models, which includes earnings from offering services to these schools through trusts.

“Prakash’s influence on trusts is questionable and serious. Revenue from schools fell over 4-5 years, but trusts gave some questionable write-offs and provisioning of dues to schools. Revenue decline also appears to be due to revision of previously agreed rental, variable and service fees with the 24 schools,” the official explained.

When contacted, Prakash told FE that there are “grave and serious allegations” against resolution professional (RP) Mehra for compromising and undermining the CIRP by a whistleblower who accused him of “criminally conspiring” with one of the resolution applicants. “Complaints against actions of Mehra, Duff & Phelps and Kroll have been made with the Insolvency and Bankruptcy Board of India (IBBI), which are under investigation,” he added.

In March, the Delhi High Court on a PIL directed IBBI to submit its report on Mehra preferably by May 27, 2019. It however did not go into merits of the case. It could not be ascertained whether IBBI has submitted its report. Kroll, a division of Duff & Phelps, conducted the forensic audit of EISML on the RP’s directions. Prakash claims that Mehra is working in collusion with Kroll and Duff & Phelps. But sources close to Mehra said the anonymous complaint on his conduct was rejected by the CoC. The NCLT bench also opined against it stating that IBBI is the agency to regulate RPs.

A senior official with another lender said that evidence reveals common control between EISML and operating trusts. “If you look at Prakash’s potential control over trusts, besides the questionable write-offs and provisioning, then there is a need for an investigation. Decisions made appear to be detrimental to EISML’s interests,” he added.

FE reviewed Kroll’s forensic report, which too raised serious questions on Prakash’s role in EISML. It said that as per the Master Security and Support Agreement (MSSA), Prakash represented 21 school trusts, three school societies, EISML and 23 related parties or subsidiaries of EISML, which indicates “potential common control”. The report too pointed out the provisioning and write-offs by EISML. Prakash countered saying that EISML has already initiated legal action against the 23 operational schools for recovering pending receivables.

Kroll’s report claims that EISML’s financial statements from FY14 to FY16 classified all 14 operating trusts, which contributed a bulk of company’s revenues, as related parties. But for FY17 onwards as per “unspecified expert opinion” the trusts ceased to be related parties. This continued in FY18 as well.

Prakash said, “Control is different from commonality. I don’t control any school as claimed by Kroll. My being a trustee in trusts or holding directorship of ESL and EISML was known to lenders. It was also part of CDR documents and MSSA. My being a trustee was also one of the conditions for loan. So commonality highlighted by Kroll was already known to lenders.”

He added that financial statements up to FY16 were prepared under accounting standards notified under the Companies Act; however from FY17, the new standards, more particularly IND AS 24 on related party disclosures, came into effect. The company had also obtained a legal view on the same.

The Financial Express reported

Categories: General News, India Bankruptcy

Tags: , , ,

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: