Lenders of bankrupt airline Go First are considering litigation finance to recover up to ₹12,000 crore tied up in various lawsuits, including an arbitration award against Pratt & Whitney. With the airline on the brink of liquidation, this alternative funding method could provide a lifeline for creditors.
Go First, formerly known as GoAir, is facing a dire situation as it stares at the possibility of liquidation. Lenders to the bankrupt airline are now exploring the option of litigation finance to recover a substantial amount of money tied up in ongoing lawsuits. This move comes as Go First’s resolution professional acknowledges that liquidation may be the only viable alternative. With an arbitration award against engine maker Pratt & Whitney and several other lawsuits in progress, the airline is seeking ways to fund its legal battles and potentially salvage a significant portion of its outstanding dues.
1. The Need for Litigation Finance
Go First’s Resolution Professional Suggests Alternative Funding
Go First’s resolution professional has proposed the idea of litigation finance as the airline faces the prospect of liquidation. With the airline’s funds depleted after it ceased operations in May, the resolution professional believes that litigation finance could be the key to pursuing ongoing legal cases. The current parameters point towards liquidation as the only remaining option, making it crucial for the airline to secure funding to continue its legal battles.
2. The Potential Recovery
Recovering a Significant Portion of Dues
The amount of ₹12,000 crore tied up in various lawsuits represents a substantial sum owed to the airline. Even if a conservative estimate of 50-60% of this amount is recovered, lenders stand to recoup a large part of their dues. The suggestion is to pay off existing legal costs to lawyers and then involve a credit fund or a large stressed-debt fund to finance ongoing litigation. This strategy aims to increase the chances of Go First winning its cases and potentially recovering a significant portion of the outstanding dues.
3. The Role of Creditors
Committee of Creditors to Finalize the Plan
The committee of creditors (CoC) will play a crucial role in finalizing the litigation finance plan. A meeting is scheduled before January to discuss and approve the proposed strategy. Additionally, a potential investor is expected to emerge within the next two months. The CoC’s involvement is essential to ensure that the plan aligns with the creditors’ interests and maximizes the chances of recovering the outstanding dues.
4. The Importance of Legal Victories
Potential Windfall from Favorable Court Verdicts
Apart from the arbitration award against Pratt & Whitney, Go First is involved in several other smaller court cases. Winning these cases could potentially bring in an additional $200-300 million for the airline. While the total litigation costs may be relatively low, a favorable court verdict has the potential to yield a significant financial windfall for Go First, further aiding in the repayment of outstanding dues.
5. The Implications of Liquidation
Liquidation Appears Inevitable
With no bidders turning up for Go First’s bankruptcy auction and the recent alteration of norms in favor of aircraft lessors involved in insolvency cases, the airline’s chances of revival have significantly diminished. Liquidation now appears to be the only way forward. However, a favorable verdict from US courts could provide some funds to address the outstanding dues. The liquidation process will follow the statutory waterfall mechanism, ensuring that all dues, including statutory and workmen dues, are paid as per the prescribed order.
Conclusion:
Go First’s lenders are exploring the option of litigation finance as the airline faces the looming threat of liquidation. With a substantial amount of money tied up in ongoing lawsuits, the airline is seeking alternative funding to pursue its legal battles. If successful, litigation finance could help recover a significant portion of the outstanding dues, benefiting both the lenders and the airline. The involvement of the committee of creditors and the potential investor within the next two months will be crucial in finalizing the litigation finance plan. As the airline prepares for a possible liquidation, a favorable court verdict could provide some much-needed funds to address the outstanding dues and potentially repay customers who had booked flights before the airline’s abrupt grounding.
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