M&A Critique

McDowell under IBC – What are the options for Shareholders?

Hon’ble National Company Law Tribunal, Bengaluru Bench (“NCLT”) vide order dated 8th April 2022 admitted the Application under section 7 of Insolvency and Bankruptcy Code, 2016 filed by “Sun Star Hotels and Estate Pvt Ltd”, a financial creditor of the erstwhile Vijay Mallya-promoted company, “McDowell Holdings Limited” (McDowell) claiming default of Rs. 16,80,66,348/- as on 30th November 2021.

Sequence of Events:–

  • McDowell availed Intercorporate Deposit from Zuari Fertilisers and Chemicals Limited (“ZFCL”) which got merged into Zuari Agrochemicals Limited (ZACL).
  • On 17th June 2019, McDowell entered into a settlement agreement with ZACL and Managalore Chemicals and Fertilizers Limited (MCFL) to settle the loan of ZACL against shares of McDowell in MCFL and the amount recovered by sale of shares of United Breweries Limited.
  • Upon the request of McDowell, ZACL extended the time period and modified the terms of a settlement agreement, pursuant to which, debts should have been cleared on or before 16th September 2021.
  • On 19th November 2021 Sunstar Hotels and Estates Private Limited (Sunstar) entered into settlement agreement with ZACL and McDowell whereas loan was repaid by Sunstar to ZACL and stepped into the shoes as lender of McDowell. In addition to outstanding ICD, Sunstar advanced a sum of Rs. 1.5 Crores at interest rate of 18% p.a.
  • Sunstar issued demand notice against the pending dues to the McDowell on 10.12.2021 and filed an application under section 7 of IBC with NCLT claiming default of Rs. 16,80,66,348.
  • On 17th February 2022, NCLT directed McDowell to file an affidavit stating litigations pending and other claims from secured and unsecured creditors.
  • On 25th February 2022, McDowell submitted an affidavit stating litigations pending and other claims from secured and unsecured creditors as asked by the NCLT. It is likely to be /must be with the full knowledge of the board.

As per the affidavit submitted by McDowell to the NCLT, McDowell has total liabilities amounting to Rs. 1,684.53 Lakhs against the assets of Rs. 196.81 Lakhs as on 30th September 2021. It seems that the company has ignored the market value of shares of United Breweries Limited which is more than Rs 1000 (One Thousand) crores as detailed below.

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Sanket Joshi