Wind up UBHL, says High Court

‘Company’s liabilities are far in excess of its net worth and assets’

February 08, 2017 12:15 am | Updated 12:15 am IST - Bengaluru:

In a major blow to liquor baron Vijay Mallya, the Karnataka High Court on Tuesday ordered winding up of United Breweries (Holding) Ltd., the 102-year-old parent company of the UB Group, for its failure to pay admitted liabilities to the unsecured and the secured creditors, including the banks, as per the corporate guarantees extended to Kingfisher Airlines Ltd. (KFA).

Justice Vineet Kothari delivered the verdict, in a sitting held through video conference facility from the Dharwad Bench, while allowing 10 petitions for winding up filed by unsecured creditors and suppliers like IAE International Aero Engines AG, Rolls-Royce & Partners Finance Limited, London, BNP Paribas, France, and secured creditors, a group of banks led by SBI. As per court’s calculation, the total due is around ₹7,000 crore.

“Commercially insolvent”

Referring to financial reports and constant increase in losses and complete erosion of net worth and reticent refusal of UBHL to square up its “guarantee obligations” and “raising sham and moonshine defences to avoid winding up, the Court said, “UBHL is a commercially insolvent company and is unable to meet its admitted financial obligations and square up its admitted liability towards the petitioning creditors.”

The court had on November 18, 2016, ordered for the winding up of KFA.

Official liquidator

Pointing out that whatever assets are left now cannot be left in the control, possession, and active management of UBHL as it exists now, the court said “it would be necessary, safe, reasonable and expedient to takeover these assets from the company and hand over the same to the Official Liquidator to proceed further for winding up UBHL, in accordance with law.”

The court also directed the Official Liquidator to file a status report within four weeks about taking over the control and possession of the assets of UBHL and also about the pending litigation or cases against UBHL at various other legal fora.

The deposits of ₹1,280 crore made in the court based in interim orders during the pendency of the petitions since 2012, would be utilised for distribution as per the law during winding up process, the court said.

USL’s changed stand

Noting that United Spirits Ltd. (USL), which was one of the UB Group companies, after being taken over by foreign companies like Diageo Plc and Relay B.V., had to change its stand from initially opposing winding up petitions to later supporting the winding-up pleas, the court observed that “it appears that something seriously wrong has taken place in the company’s [UBHL] management and affairs, where it has been unable to perform its contractual obligations even towards its own company, what to talk of all other creditors…”

UBHL, which was initially a holding company of the KFA, later diluted its shareholding in the airline, but validity of corporate guarantees extended by UBHL continued.

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