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Home >Companies >United Spirits seeks shareholders’ nod to report sick to BIFR

New Delhi: United Spirits Ltd (USL) is seeking shareholders’ approval to refer India’s largest liquor maker to the Board for Industrial and Financial Reconstruction (BIFR) as its accumulated losses as on 31 March have touched 86% of peak net worth during the past four fiscal years.

The reference, if accepted by BIFR, will give USL protection from its creditors.

The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) bars lenders from taking legal recourse to recover loans once a company is referred to BIFR. Many borrowers have, however, misused this provision to buy time.

According to SICA, if the accumulated losses of a company, at the end of any fiscal year have resulted in erosion of 50% or more of its peak net worth during the preceding four fiscal years, such a firm is required to report to BIFR.

In a notice to the shareholders for an extraordinary general meeting on 22 January, Diageo Plc-controlled USL on Tuesday said, as per the audited annual accounts for the year ended 31 March, “the accumulated losses of the company as at March 31, 2015 is 86% of its peak net worth during the four financial years preceding the financial year ended March 31, 2015".

“Accordingly, this extraordinary general meeting (EGM) is being convened to consider and approve the enclosed report of the Board of Directors on such erosion and its causes, and the measures being taken as per the relevant provisions of SICA, and also to approve the reporting of such erosion to BIFR in terms of Section 23 of SICA," it added.

USL accumulated losses as on 31 March was at 5,045.45 crore exceeded 50% of the peak net worth in the immediately preceding four fiscal years at 5,849.62 crore.

The two main reasons for the losses are “diminution in the value of long-term investments in subsidiaries and loans and advances to subsidiaries due to low capacity utilisation, negative margins, or strategic shift in business (Rs 716.16 crore)" and “provision on advances to United Breweries (Holdings) Ltd (Rs 995.45 crore)", it said. Others reasons are diminution in the value of investments and advances in overseas subsidiaries (Rs 184.85 crore), loss on sale of shares in subsidiaries (Rs 10.84 crore), profit on sale of manufacturing unit (Loss of 35.65 crore), provision for doubtful debts, advances and deposits (Rs 113.40 crore) and provision for sales and other taxes (Rs 97.32 crore).

USL said it has generated cash profit during the six months ended 30 September, and it is taking steps including entering into certain arrangements with certain overseas subsidiary companies of Diageo Plc for manufacture and sale of certain key brands, to improve its financial health.

In April last year alleging fund diversion to Kingfisher and other UB Group entities, USL had asked its erstwhile promoter and chairman Vijay Mallya to quit the board, even as the liquor baron rejected the demand and the charge. The board of USL, in which Diageo had bought a controlling 55% stake for about $3 billion, alleged “various improprieties and legal violations" were found in a probe into loans worth 1,337 crore given by USL to various UB Group firms.

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