Proxy advisory firm Institutional Investor Advisory Services India (IiAs) has advised shareholders against supporting Future Lifestyle Fashions’ (FLFL) motion for the sale of fixed assets to repay debt as this would reduce its scale of operations. However, it asked the shareholders to support two other motions, both appointments of independent directors.
The Future Group company had earlier sought the consent of its members for the sale of in-store retail infra-assets, which will be used for the repayment of debt and other operational liabilities. The group firm is seeking approval through an e-voting, which ends on Thursday.
“While we understand that the company will need funds to keep itself afloat, the approval sought is for disposal of assets worth Rs 1,390 crore, which contributed to 64.2% of the company’s revenues in FY21 and 32% of the company’s total assets as of March 2022. This will significantly reduce the scale of the company’s operations,” IiAS said in a note.
“It is unclear how the company will be able to operate at its current scale without these assets. Further, except that the sale of assets will be at least at book value, there is no further disclosure on the proposed disposal. The board needs to provide a plan to the company’s shareholders on the potential continuation of the business in light of the sale of a dominant portion of assets,” it added.
According to IiAS, Future group is under financial stress and group company FLFL has defaulted on debt obligations. The group’s operations have been further impacted after its proposed deal with Reliance Industries failed.
In the postal ballot notice, FLFL had sought authorisation to sell, lease, rent, transfer or dispose of fixed assets (in-store retail infra assets) which were lying at non-operational stores. The board had proposed to use the proceeds for repayment of debt and other operational liabilities, which would help the company reduce its debt “considerably”.
The board believed that with the remaining assets, FLFL will be able to continue its business operations.
IiAS has asked shareholders to support two other motions — to appoint Bharat Ram and Neelam Chhiber as independent directors for five years from July 19, 2022.
Earlier in September, FLFL got a three-month extension from the Registrar of Companies for holding its annual general meeting.