Rescuing steel tycoon Pramod Mittal who owed £2.5 billion
How does anyone end up going bankrupt with debts of over £2.5 billion, never mind if you’re the brother of one of the world’s richest men? The answers include some of the usual business explanations; this was all 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 to be close to £7 billion. Like his brother, Pramod Mittal has spent his career in the steel industry following in the footsteps of their father, who started a business in the sector in 1950.
Things started to go wrong following the global financial crisis in 2008, when a sharp drop in demand for steel devastated the price worldwide, making various deals in which Pramod was involved turn seriously sour. The eventual outcome was a range of problems around the world, in particular in the Philippines, Bosnia and the Isle of Man where creditors of companies there called in Pramod Mittal’s personal guarantees.
Declared bankrupt
In June this year, the merry-go-round of debt negotiations stopped, and Pramod Mittal was declared bankrupt owing a staggering £2.55 billion to a list of some ten to twenty creditors spread across the globe, including in India, Dubai, Indonesia and Singapore. Around 7% of the debt (£173 million) is owed to his father, wife and son. This is believed to be the biggest ever UK bankruptcy.
His assets are minimal; some jewellery, three watches, a collection of vintage cars in India, a quarter share in a plot of land also in India and some small investments in India and elsewhere. It is estimated that the total value does not exceed £150,000. The outcome of the bankruptcy was expected to produce no payment to his creditors.
Six week ago consulting firm Opus Restructuring was approached ago to see whether there might be a better way forward, which would produce at least some return for the creditors and avoid the personal consequences of the bankruptcy for Pramod Mittal.
Opus has since conducted intense and very challenging negotiations with Pramod Mittal, his family and his creditors, culminating on 26th October in a vote by the creditors to approve an Individual Voluntary Arrangement (IVA). Pramod Mittal will now apply to have the June bankruptcy cancelled.
An IVA is essentially a deal between an insolvent debtor and their creditors, under which they agree to accept part settlement against what they are owed. Given the extremely low value of the assets in this case, money for the settlement has had to come from elsewhere. Mittal’s son has agreed to make a voluntary contribution of £4.7 million towards his father’s debts.
The result will be that the creditors are likely to only get around 0.19 pence in the £, which is the equivalent of 19p for every £100 they are owed. This may seem hardly worth the effort, but there are a number of other potential sources of funds, which could have been lost if the original bankruptcy had proceeded, but which could produce a bigger return for the creditors under the IVA. These are highly confidential and sensitive issues.
Opus will now have an initial six months (which can be extended) to pursue those other potential recoveries, verify the claims of creditors and pay over either just the dividend of 0.19 pence in the £ or a higher figure if the ongoing negotiations are successful.
The lesson from this extraordinary global story of mega deals and debts is that bankruptcy, with all of its stigma, personal restrictions and throwing of financial babies out with the bath water doesn’t have to be the finale of a commercial disaster story for either a debtor or their creditors. It is always worth getting expert advice – as in this case with Opus Restructuring – to see if a happier ending can be written.
