New Delhi: In order for the business of Future Retail Limited (FRL) to continue, Reliance also extended working capital support through which FRL was able to pay its statutory dues, pay interest and a one-time settlement amount to banks to continue its Commercial activities.
FRL owes Reliance for this working capital support. In August 2020, the boards of directors of FRL and other Future and RRVL companies approved the Scheme of Arrangement for the transfer of the retail and logistics activities of the Future Group to RRVL on the basis of a sale in decline for an aggregate consideration of Rs 24,713 crore.
Future Group was in great financial difficulty and stressed. FRL was in default of payment of sums due to its creditors and landlords for the leased premises.
Amazon litigation was delaying implementation of the scheme, and creditors and property owners were getting nervous.
Due to persistent breaches, the owners had initiated the termination of the rental contracts and the repossession of the premises. Around December 2020, Reliance became aware of the above scenario of landlords terminating store leases and the prospect of store closures.
If this had continued, the program would have been compromised, the value of the FRL would have been destroyed; (iii) FRL would have become insolvent and all the consequences of insolvency would have followed.
It was in the interest of all stakeholders of the FRL (including banks, creditors, employees, etc.) that the activity of the FRL continued and that its value was preserved.
Since the program was in the public domain, several landlords approached Reliance and Reliance signed rental agreements with those landlords, where possible.
Reliance has sublet all of these premises to FRL in order to continue its activity. FRL has not paid the rents of these premises to Reliance that Reliance has incurred in this regard.
These good faith actions by Reliance consisted solely of (i) preserving the value of FRL (ii) FRL not falling into insolvency; (iii) FRL continuing to do business; (iv) thousands of employees continue to work; (v) advancing the implementation of the Programme.
Despite the above support, FRL suffered losses of over Rs 4,445 crore in the calendar year 2021.
It is essential for the preservation of the value of the FRL that it does not continue to suffer huge losses. FRL should continue to operate, while reducing its operating losses.
Reliance repossessed these premises which were sublet to FRL. All these stores are loss-making. The remaining stores will continue to be managed by FRL. In this way, the operating losses of the FRL will be reduced and it will be able to continue its activity.
Reliance will assess and use such premises as prove to be commercially viable. In doing so, Reliance will rehire the thousands of store employees who would otherwise have lost their jobs.
These actions by Reliance preserve the value of the FRL, allow the scheme to continue and benefit the FRL’s bankers and creditors. When the scheme is implemented, Reliance will pay the consideration in accordance with the terms of the scheme, which is in the interest of the FRL’s bankers and creditors.