Go First Insolvency 1

FELLOWSHIP ASSIGNMENT – May 2023

Go First filed Voluntary Insolvency

-By Priyansh Bachani (FE-0222-10223)

Air Carrier Go First Airways filed for insolvency resolution proceedings in the National Company Law
Tribunal on 2nd May, 2023.

About
NCLT is a quasi-judicial authority incorporated for dealing with corporate disputes that are of civil nature
arising under the Companies Act. The primary function of the NCLT is to adjudicate on matters related to
corporate law, including disputes between companies and their stakeholders, as well as insolvency and
bankruptcy cases.

Functions

 Disposal of all proceedings under the Companies Act such as arbitration, arrangements, compromise,
reconstruction, and winding up of the company;

 Adjudicating Authority for insolvency proceedings under the Insolvency and Bankruptcy Code, 2016;

 Possess the authority to dispose of cases pending before the Board for Industrial and Financial
Reconstruction (BIFR), as well as, those pending under the Sick Industrial Companies (Special
Provisions) Act, 1985.

 Can take cases pending before the Appellate Authority for Industrial and Financial Reconstruction

What is voluntary insolvency?

 In simple words, voluntary insolvency means that the company has accepted its business is
insolvent.

 It is a process in which the company says it cannot pay debts and needs help from someone to sort it
out.

 When the company goes insolvent, it can proceed to voluntary liquidation.

 This process refers to the dissolution of a company with approval from shareholders and creditors of
the company.
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 It is a time-bound process which needs to be completed in 270 days from the date of commencement
of Voluntary Liquidation.

News Summary: Go First files for voluntary insolvency proceedings with NCLT

 Cash-strapped carrier Go First has filed for voluntary insolvency proceedings with the NCLT.

 Go First is the first Indian carrier since Jet Airways to go to the NCLT under the Insolvency and
Bankruptcy Code (IBC).

o IBC is a comprehensive legislation introduced by the government in 2016 to deal with

insolvency and bankruptcy proceedings in a time-bound and efficient manner.

o The primary objective of the IBC is to promote entrepreneurship and facilitate the resolution
of distressed assets, while balancing the interests of all stakeholders.

o The IBC establishes several important institutions, including:

 the Insolvency and Bankruptcy Board of India (IBBI), which regulates insolvency
professionals and information utilities, and

 the National Company Law Tribunal (NCLT), which hears and decides corporate
insolvency cases.

Why Air Carrier Go First Airways took this drastic step?

 Unavailability of aircraft

o The airline has been facing headwinds with the unavailability of aircraft for many quarters.

o All its A320neo aircraft are powered by Pratt & Whitney and the engine manufacturer has
had issues supplying replacement engines.

o This resulted in the airline being forced to ground 25 aircraft.

 This is approximately 50 per cent of its Airbus A320neo aircraft fleet as of 1 May
2023.
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 Financial woes

o Go First said has lost revenue worth ₹10,800 crore due to the grounding of close to 50 per
cent of its A320neo fleet.

o The airline has also sought compensation worth ₹8,000 crore in the Singapore International
Arbitration Centre (SIAC).

 SIAC is a leading institution for the resolution of commercial disputes through

arbitration.

 It was established in 1991 as an independent, not-for-profit organization by the

Singapore Ministry of Law.

 It aims to provide a neutral and efficient forum for the resolution of commercial
disputes.

o In case the arbitration is successful, the company will be able to address the liabilities of its
creditors, small and large.

What happens now?

 Go First has applied to the NCLT because of the persistent issues with the engines supplied by Pratt
and Whitney.

o The engine supplier, according to the airline, has failed to repair those engines and/or
provide sufficient spare leased engines.

 Once the application is admitted under NCLT, an interim resolution professional will take over and
operate Go First.

What does it mean for Indian aviation?

 Second incident in five years

o Go First's bankruptcy filing would be the second in five years after Jet Airways failure in
April 2019 in the aviation industry.
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o Although, Jet Airways although has been rescued by Murari Lal Jalan and asset management
firm Kalrock. It is yet to commence its operations in the market.

o Hence, how much time Go First takes to hit the runway again will be keenly observed.

 Sudden availability of workforce at all levels

o Currently, the demand for pilots was picking up and airlines were being pushed into a corner
by pilot bodies for salaries and minimum flying hours guarantee.

o In this context, an airline getting into bankruptcy resolution would mean that there is likely
to be a sudden availability of workforce at all levels.

o As a result, the airports, passengers, employees and just about everyone in the ecosystem
will be impacted.

Sources:

 Economic Times
 Hindustan Times
 Mint
 Indian Express
 CNBC TV18
 Business Today