Go First Seeks Litigation Finance to Recover ₹12,000 Crore Amidst Likely Liquidation
The bankrupt airline, Go First, is exploring litigation finance options to retrieve funds tied up in various lawsuits, including an arbitration award against Pratt & Whitney. With liquidation looming, lenders are considering this alternative to recover a substantial portion of their dues.
Go First, formerly known as GoAir, is facing the possibility of liquidation as it grapples with a significant amount of funds trapped in ongoing litigation. The airline, which ceased operations in May, is now exploring the option of litigation finance to recover up to ₹12,000 crore. This includes an arbitration award it won against engine maker Pratt & Whitney at the Singapore International Arbitration Centre earlier this year. With the airline’s resolution professional suggesting that liquidation is becoming increasingly likely, lenders are looking to litigation finance as a potential solution.
The Need for Litigation Finance
Amidst the current financial crisis faced by Go First, litigation finance has emerged as a viable option to recover the substantial funds tied up in ongoing lawsuits. The resolution professional has proposed this alternative, recognizing that the parameters are pointing towards liquidation as the only remaining option. By securing litigation finance, lenders can pay off existing legal costs and finance future litigation, potentially resulting in a favorable outcome for the airline.
The Potential for Recovery
The estimated ₹12,000 crore due to Go First from various lawsuits presents a significant opportunity for lenders to recover a substantial portion of their dues. Even if 50-60% of this amount is realized, it would go a long way in resolving outstanding payments. The committee of creditors (CoC) is set to meet and finalize the plan before January, with a potential investor expected to come on board within the next two months. While total litigation costs may be relatively low at around ₹100 crore, a favorable court verdict could yield up to ₹12,000 crore for the airline.
Other Lawsuits and Potential Gains
In addition to the case 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. This further highlights the significance of litigation finance in maximizing the recovery of funds for the lenders.
Go First’s Financial Obligations
Go First’s insolvency filings reveal that the airline owes at least ₹11,463 crore to banks, international lessors, and vendors. Financial creditors, including Central Bank of India, Bank of Baroda, IDBI Bank, and Deutsche Bank, are owed at least ₹6,521 crore. While the airline had hoped to restart with interim financing from these lenders, objections from aircraft lessors regarding their dues being cleared first have complicated the situation.
The Impact of Regulatory Changes
The chances of Go First’s revival were further diminished when the Ministry of Corporate Affairs altered the norms in favor of aircraft lessors involved in insolvency cases. This development, in line with the Cape Town Convention, has significantly reduced the likelihood of a successful turnaround for the airline. The lack of bidders at the bankruptcy auction has further solidified the prospect of liquidation.
The Role of Litigation Financing
Litigation financing, a prevalent model abroad, is expected to facilitate the recovery of dues from Go First. Both the financier and the company stand to benefit if the court ruling favors the airline. The lenders will receive their share based on the waterfall mechanism under liquidation, which specifies the order in which dues are distributed among claimants. While Go First’s leased aircraft may not be useful during the piecemeal sale of assets, the airline does have immovable assets that could be liquidated to generate funds.
Conclusion:
With Go First facing the imminent possibility of liquidation, litigation finance has emerged as a potential lifeline to recover the substantial funds tied up in ongoing lawsuits. The airline’s resolution professional has proposed this alternative, recognizing the limited options available. By securing litigation finance, lenders have the opportunity to pay off existing legal costs and finance future litigation, potentially resulting in a favorable outcome for the airline. The recovery of funds through successful litigation could also benefit customers who had booked flights before the airline’s abrupt grounding. As Go First navigates the resolution process, the utilization of litigation finance may prove to be a crucial factor in maximizing the recovery of dues and addressing the airline’s financial obligations.