InvestorQ : Why cannot the government refer Jet Airways also to the NCLT to solve the problem? What is stopping from sending Jet to NCLT?
Dilmini Mercia made post

Why cannot the government refer Jet Airways also to the NCLT to solve the problem? What is stopping from sending Jet to NCLT?

Answer
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Dhwani Mehta answered.
1 year ago


Companies like Jet Airways and many other service companies have a unique problem of limited tangible assets. For a company like Jet, aircrafts are on lease, offices are on rent and most assets are intangible in the form of goodwill, brand, loyalty etc. Cases like Jet, IL&FS, DHFL all refer to soft bankruptcies. That is because; they do not have worthwhile tangible assets like plant and machinery which can be liquidated. The NCLT is not equipped to handle soft bankruptcies like these. With hardly any fixed assets, these soft bankruptcies post the big challenge to India. Jet being a soft bankruptcy, the best option is in finding a buyer and asking the banks to take a haircut.

In fact, one of the good ways of handling soft bankruptcy is to adopt the Satyam model. When Satyam went bust in 2009 due to huge intergroup accounting jugglery, the government and the MCA moved in quickly to assume control and also brokered the deal with Tech Mahindra. There may be job losses but Satyam was handled with a lot of care without any disruptions. That is the only way to solve problems like Jet Airways. NCLT will not work as there are no hard assets in their books after the dues are paid.

One way to handling soft bankruptcies like Jet is to adopt the more evolved American model. In the US, the government is quick to intervene where the problem is cyclical or where externalities are huge. For example, the government intervened to save Fannie Mae, Freddie Mac, Citi and GM due to the larger implications. However, the US government was willing to let the likes of Enron, Bear Sterns and Lehman to implode altogether. India needs to adopt this model quickly when it comes to handling soft bankruptcy. Soft bankruptcy allows promoters to get away through forced liquidation. India cannot afford to repeat the mistakes SBI made with Jet.