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Reliance backs out of Future deal after secured creditors rejection

The pact collapsed after it fell short of the 75 per cent threshold for approval from secured creditors though shareholders and the unsecured creditors had given assent
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Our Special Correspondent   |   Mumbai   |   Published 24.04.22, 12:31 AM

Reliance Industries Ltd (RIL) has pulled the plug on its Rs 24,713 crore-deal with Kishore Biyani’s Future group to acquire its retail business — a prospect that loomed earlier this week after the financial creditors refused to ratify the agreement that had been struck in August 2020.

The Reliance-Future deal had turned controversial and spawned a vicious legal battle between Biyani’s Future Retail Ltd (FRL) and Amazon Inc over embedded rights in another deal that the Jeff Bezos-owned retail giant had negotiated with Future Consumer Ltd in 2019.

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Reliance Industries and its associate companies have already snapped up closed to 1,000 stores that once housed the Future group’s various retail formats after FRL defaulted on lease repayments, which sent Biyani’s business crashing like a house of cards.

Questions now remain over the legitimacy of those store acquisitions and the manner in which these were acquired — and could add another dimension to the acrimonious, 20-month legal wrangle that has been played out before the courts and other legal forums in India and an international arbitration tribunal in Singapore.

Between April 20 and 23, shareholders and the secured and unsecured creditors of the Future group had voted on a resolution seeking approval for the deal with the Reliance group.

The deal virtually collapsed after it fell short of the 75 per cent threshold for approval from the secured creditors even though shareholders and the unsecured creditors had given their assent.

In September last year, the National Company Law Tribunal (NCLT) had permitted the Future group to convene meetings of its creditors and shareholders to seek their approval for the transaction.

When the voting results were declared last Friday, it emerged that 69.29 per cent of FRL’s secured creditors had voted against the resolution while 30.71 per cent had supported it. Similarly, in the case of Future Lifestyle Fashion Ltd (FLFL), 82.75 per cent of the secured creditors voted against the transaction.

Under the current regulations, a resolution is deemed to have been passed only if it receives 75 per cent approval from each interested category.  

“The Future group companies comprising FRL and other listed companies involved in the scheme have intimated the results of the voting on the scheme of arrangement by their shareholders and creditors at their respective meetings. As per these results, the shareholders and unsecured creditors of FRL 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 on Saturday.

In August 2020, the Future group announced plans to sell 19 companies operating in retail, wholesale, logistics and warehousing segments to Reliance Retail Ventures Ltd (RRVL). RRVL is the holding company of all the retail companies under the RIL group.

The latest development comes as a blow to Biyani and FRL which will now be hauled through a bankruptcy resolution process after defaulting on their loan repayment obligations. The Future group owes nearly Rs 28,000 crore to lenders out of which FRL owes over Rs 17,000 crore.

Questions loom

The collapse of the FRL-Retail deal throws up a number of questions for which there are no easy answers.

The first question is whether Amazon will now withdraw its arbitration case before the Singapore tribunal against the Future group since the “restricted person” has now backed out from the deal. The sale to Reliance was one of the key reasons why Amazon had aggressively tried to block the sale.

The second major question is what happens to the leased Future group stores that have been taken over by Reliance.

Starting late February, Reliance had seized control of almost 950 stores that included BigBazaar, Heritage, Easy Day and Fashion@BigBazaar formats. These stores came into the Reliance fold after several cash-strapped landlords had sought its help since FRL could not pay the rent. Following this, Reliance transferred the leases of some of these outlets to its arm-Reliance Retail Ventures Ltd (RRVL) and then sub-let them to Future to operate the stores.

RIL’s announcement on Saturday was silent on the status of these store acquisitions. Observers said it was unlikely that these would be handed back to the Future group since they were operated under lease and not owned by the Future group firms.

They, however, added that some of the assets like chillers, billing machines, air conditioners and unsold inventory may be turned over to the Kishore Biyani group. But even this could not be confirmed from Reliance officials.

The ownership of the stores could become a contentious issue between the FRL lenders and the Reliance group. Financial creditors like Bank of India (BoI) have already issued a notice warning the public against dealing with the assets of FRL. They had also pointed out that any such dealings could be subject to a claw back under law.

Moreover, SBI — another lender to the Future group — has asked FRL to fix accountability for the store acquisitions by the Reliance group. The banks intend to assert their rights over stock and the fixed assets held in these stores.

Meanwhile, the chairperson and independent director of Future Lifestyle Fashions, Shailesh Haribhakti, has resigned, observing that “volatile, complex and unpredictable legal and financial circumstances have taken unexpected turns.

 



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