Reliance Industries (RIL) on Saturday expressed its inability to complete the transaction related to taking over of the retail, wholesale, logistics and warehousing businesses of Future Retail Limited (FRL) after the proposal was rejected by a majority of its lenders.
“As per these results, the shareholders and unsecured creditors of Future Retail have voted in favour of the scheme. But the secured creditors of FRL have voted against the scheme. In view thereof, the subject scheme of arrangement cannot be implemented,” RIL said in a regulatory filing to the stock exchanges. RIL’s statement makes it clear that FRL is now headed for bankruptcy and the matter is likely to be admitted by the National Company Law Tribunal soon, legal experts said.Legal observers added that with RIL’s retail subsidiary Reliance Retail Ventures already taking over some 900 stores of FRL due to default in payment of rent, it does not make sense for it to pay the original agreed price of Rs 24,713 crore.
“Even if Reliance is interested in taking over the remaining stores of FRL and the logistics and warehousing business, it makes sense for it to acquire the same under the insolvency and bankruptcy code route or by entering into negotiations with the lenders, as that way it can get the same at a much cheaper rate,” a corporate lawyer said.
As reported by FE earlier, with Amazon objecting to the deal right from the start, the matter is currently under challenge before the Delhi high court, Supreme Court, NCLT, National Company Law Appellate Tribunal, Singapore Arbitration Tribunal, and Competition Commission of India. It remains to be seen how these cases pan out.
On Friday, FRL had disclosed to the exchanges that while more than 75% of shareholders and unsecured creditors had supported the deal with RIL, the company had failed to get the requisite 75% favourable voting from secured creditors. A majority of 69.29% of secured creditors of FRL had voted against the resolution, while 30.71% had voted in favour of it.
Secured creditors are granted security from a company through either a legal fixed or floating charge over the business’ assets and get preference over unsecured creditors in payment of dues by a company.
For such transactions to close, approval of shareholders and lenders is required before it goes to the NCLT for final approval.
The online shareholders’ meeting and voting of six Future Group’s listed entities — FRL, Future Lifestyle Fashion, Future Enterprises, Future Consumer, Future Market Networks, and Future Supply Chain Solutions — took place on Wednesday. This was followed by voting by the secured and unsecured creditors on Thursday.A
State Bank of India, Bank of India and Bank of Baroda, have already classified FRL’s outstanding debt as non-performing assets. Future Retail’s loans had been restructured under the resolution framework for Covid-related stress proposed by the Kamath committee on October 29, 2020. Throughout the 19-month period when the company’s loans remained under moratorium, bankers had been hopeful that Reliance Retail would take over the Future Group’s wholesale, retail and logistics businesses and clear its dues to banks. The implementation of the scheme came under a cloud when Amazon objected to the deal and triggered a legal battle that is still ongoing.
Future Retail defaulted on dues worth Rs 3,494.56 crore in December 2021 and on another Rs 5,322 crore scheduled for March 31, 2022.
The company has already slipped in January and the 40% provisions taken against that account will show in banks’ Q4FY22 financial results. Banks have also started to step up provisioning against their exposure to Future Enterprises after the company defaulted on repayments worth Rs 2,836 crore in March.
The FRL-Reliance deal has been facing litigation on several fronts since October 25, 2020, when the Singapore’s Emergency Arbitrator passed an interim order restraining FRL from going ahead with the deal. Amazon, which had acquired an indirect minority stake in Future Group in 2019, has alleged that Future’s sale of its retail, wholesale, logistics and warehousing businesses to Reliance Retail breached its pre-existing contract, which included a right of the first offer and a non-compete clause.