Rescue steel tycoon Pramod Mittal who owed £2.5billion

How does anyone end up bankrupt with debts of over £2.5billion, let alone the brother of one of the world’s richest men? The answers include some of the usual trading explanations; it was about the risks of bad timing, betting big on commodity prices and signing unlimited personal guarantees.

Pramod Mittal is the younger brother of Lakshmi Mittal, whose personal fortune is variously estimated at nearly £7 billion. Like his brother, Pramod Mittal spent his career in the steel industry following in the footsteps of their father, who started a company in the sector in 1950.

Things started to go wrong following the global financial crisis of 2008, when a sharp drop in demand for steel devastated prices around the world, causing various transactions in which Pramod was involved to go seriously wrong. degraded. The end result was a series of troubles around the world, particularly in the Philippines, Bosnia and the Isle of Man where corporate creditors called on Pramod Mittal’s personal guarantees.

Declared bankrupt

In June this year the merry-go-round of debt negotiations stalled and Pramod Mittal was declared bankrupt owing a staggering £2.55billion to a list of around ten to twenty creditors spread around the world, including India, Dubai, Indonesia and Singapore. Around 7% of the debt (£173m) is owed to his father, wife and son. It is believed to be the biggest bankruptcy ever recorded in the UK.

His strengths are minimal; some jewelry, three watches, a collection of vintage cars in India, a quarter share in land also in India, and some small investments in India and elsewhere. The total value is estimated to be no more than £150,000. The outcome of the bankruptcy was expected to produce no payment to his creditors.

Six weeks ago consultancy Opus Restructuring was approached to see if there was a better way forward that would at least produce some return for creditors and avoid the personal consequences of bankruptcy. Pramod Mittal.

Opus has since conducted intense and very difficult negotiations with Pramod Mittal, his family and his creditors, culminating on October 26 in a vote of creditors to approve an Individual Voluntary Arrangement (IVA). Pramod Mittal will now seek the annulment of the June bankruptcy.

An IVA is essentially an agreement between an insolvent debtor and their creditors, whereby they agree to accept partial settlement against what is owed to them. Given the extremely low value of the assets in this case, the money for the settlement had to come from elsewhere. Mittal’s son agreed to make a voluntary contribution of £4.7million towards his father’s debts.

The result will be that creditors are likely to only get around 0.19p in £, which equates to 19p for every £100 owed to them. It may seem hardly worth the effort, but there are a number of other potential sources of funds, which could have been lost had the original bankruptcy occurred, but which could produce a greater return for creditors. under the IVA. These are highly confidential and sensitive matters.

Opus will now have an initial six-month period (which can be extended) to pursue these other potential recoveries, verify creditors’ claims and pay either just the £0.19 pence dividend, or a higher figure if the ongoing negotiations succeed.

The lesson from this extraordinary global story of mega-deals and debt is that bankruptcy, with all its stigma, personal restrictions and throwing out financial babies with the bathwater, doesn’t have to be the end. of a commercial catastrophe for a debtor or his creditors. It’s always worth getting expert advice – as in this case with Opus Restructuring – to see if a happier ending can be written.

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