The Rs 24,713-crore deal struck between Future Retail and Reliance Industries subsidiary Reliance Retail Ventures (RRVL), way back in August 2020, seem to have fallen through for all practical purposes, with the majority of lenders voting against the takeover by the latter.
According to legal experts, the lenders would, in all probability, now take FRL to the National Company Law Tribunal for bankruptcy. The only way the deal can be salvaged is if Reliance Retail still takes over the company – the shareholders of FRL have approved the sale – and negotiates with the banks over settling the debts. H P Ranina, eminent corporate lawyer told FE that the case will now move to the courts unless the bankers or Reliance decide to renegotiate.
Even in such an eventuality, the matter is sure to be embroiled in litigation for several months.
As it is, with Amazon objecting to the deal right from the start, the matter is currently in litigation before the Delhi high court, Supreme Court, NCLT, National Company Law Appellate Tribunal, Singapore Arbitration Tribunal, and Competition Commission of India.
A regulatory filing to the stock exchanges by FRL on Friday showed that while more than 75% of shareholders and unsecured creditors supported the deal, FRL failed to get the requisite 75% favourable voting from secured creditors.
A majority of 69.29% of secured creditors of FRL voted against the resolution while 30.71% voted in favour of it.
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.
State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, have already classified FRL’s outstanding debt as non-performing assets.
While 85.94% shareholders voted in favour of the deal with Reliance, 14.06% shareholders opposed it.
The company managed to get the requisite approval of 75% from unsecured creditors with 78.22% of them supporting the deal while 21.78% voting against the resolution.
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.
Group firm Future Lifestyle Fashion (FLFL) said that a majority of its secured creditors have voted against the deal.
As reported earlier by FE, with Reliance Retail taking over close to 900 stores of Future Retail due to default in rent payments, banks were hoping for some assurance from the former on the repayment of the dues of Rs 6,287 crore. However, Reliance Retail is understood to have scaled down the value of the assets to lower than the original sale price of Rs 24,713 crore, which disappointed the bankers.
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 `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.