The Karnataka High Court has issued an official order to Vijay Mallya’s holding company United Breweries Holdings (UBHL) to wind up business activities and liquidate all assets to repay the roughly Rs.9,000 crore debt owed by Kingfisher Airlines to a number of banks. However, the sale of the company and all currently held assets won’t be enough to cover the entire debt, and some investors may even stand to lose their rights over money owed to them by the defunct airline operator.
The decision to ask UBHL to shut shop and pay up for Kingfisher Airlines was taken on the basis that UBHL was the guarantor for Kingfisher Airlines, and since Kingfisher Airlines could not repay its debt on time, UBHL will be expected to liquefy its assets and repay the owed amounts.
UBHL is currently valued at Rs.3,365 crore (by a Capitaline Databases report) but is currently in debt to the tune of Rs.2,162 crore, leaving its rough net worth at around Rs.1,203 crore. UBHL holds an 11.46% stake (Rs.2,316 crore) in United Breweries and a 2.9% stake (Rs.939 crore) in United Spirits. The holding company also owns shares in UB Engineering, UB Global and Kingfisher Airlines, all of which will have to be sold.
Justice Vineet Kothari allowed all 11 petitions filed against UBHL and passed the 248-page order on the 7th of February, 2017. Previously, in January 2015, the high court admitted petitions that called for the winding up of UBHL, filed by BNP Paribas, SBI, Aircraft lessor companies, Rolls Royce, International Aero Engines and Hindustan Petrol Corporation Ltd (HPCL) among others.
All of UBHL’s movable and immovable assets and all its shares held in other/group companies must now be sold off to honor payments to creditors. However, there is a petition being filed against this decision.
HDFC Bank, Prestige Estates, Lakshmi Vilas Bank, etc. had filed petitions against the shutting down of the company. Since the court order was passed after combining and allowing other petitions, an original side appeal or first appeal must now be filed to the effect of not winding up UBHL. All those who objected the original petition to wind up UBHL’s business will be party to the appeal being filed against the wind-up order.
Even if UBHL is totally dissolved and liquefies all assets, the resultant funds will be not be sufficient to pay off all creditors. For example, Prestige Estates stands to lose the Rs.150 crore owed to them even if UBHL liquefies its assets. If the company is wound-up, the dues will be lost and in the case of liquidation, Prestige Estates is the last beneficiary – and since the company value is less than the amount owed – it effectively means that Prestige Estates will have to eat that loss. Apart from this, the anti-wind-up petition also states that UB group’s 100 direct and 1,000+ indirect employees stand to lose their jobs and livelihoods.
As of now, however, the high court has appointed an official liquidator to take charge of, and assess, the value of all (movable and immovable) assets held by UBHL and group companies. The official liquidator will be responsible for compiling a detailed list of all held assets in India and overseas, evaluating the total value, and liquidating the same in a timely manner. This process will take a lot of time owing to the sheer scale of the case and the many and varied assets held officially and unofficially by UBHL and group companies.