Kingfisher Airlines Case Study
INTRODUCTION
Kingfisher was one of the largest aviation companies in India. It was set up in the year 2003 by the United Breweries Group but shut down its operations in 2012 as it never made profit. In 2015, United Bank of India declared Vijay Mallya, the company’s promoter and chairman, a ‘wilful defaulter’. The company owed more than rupees 80 billion in unpaid loans to banks and tax authorities, employees had claims against the company for unpaid amounts.
ANALYSIS
Q1.Who is obliged to repay a company’s debts: the company, promoters, shareholders, or directors?
ANS: Firstly if a director is complying with the law then the company is obliged to repay its debt as it is a separate legal entity from its directors, shareholders. Director’s will …show more content…
He was charged with conspiracy and fraud and was declared as a wilful defaulter by the bank.
Q2. Are there circumstances under which promoters or directors could be asked to repay the loans taken by the company?
ANS: A Promoter is a person who participates in acts on behalf of a company that has to complete formal incorporation. If the company fails to complete the registration process, he may be liable for the contracts but he will not be liable to repay a company’s debt until and unless he is still holding a position in the company. In case of Kingfisher, Vijay Mallaya is a promoter as well as the Managing Director of the company and he gave personal assurance to the banks so he could be asked to repay the loans taken.
A director is a person who is responsible for managing the company’s activities.
As a company is a separate legal entity it is obliged to repay its debt but in case 1. A director falsely misrepresents a company for money and is proved guilty then he is obliged to repay company’s …show more content…
He is personally obliged to repay back.
Q3. What options do the banks have for recovery of the loans in a case like this one?
ANS To recover bank loans, banks form consortium to proceed with these loans together and sign a Master Debt Recast Agreement with the borrowing company to merge all the loans into a single term loan. Various assets and personal guarantee if any, that the company had pledged to the banks as security will be pooled together. The banks may use Sarfaesi Act under which it will give a notice to the company to clear their loans within 60 days failing to which, it will sale the securities to recover the loan.
In this case, banks also did the same, they form consortium and signed a master Debt Recast Agreement with the Kingfisher Airlines to merge all the loans into a single term loan. Some banks sold Kingfisher Airlines shares pledged against the loans, also sold Mallaya’s luxurious Kingfisher Villa in Goa for rs 73 crore and they also tried to sell the trademarks but failed as their value has gone down to nothing. They are still trying to recover the remaining debt.
Q4. What are the rights of a company’s shareholders against the promoter in a case like this
Kingfisher was one of the largest aviation companies in India. It was set up in the year 2003 by the United Breweries Group but shut down its operations in 2012 as it never made profit. In 2015, United Bank of India declared Vijay Mallya, the company’s promoter and chairman, a ‘wilful defaulter’. The company owed more than rupees 80 billion in unpaid loans to banks and tax authorities, employees had claims against the company for unpaid amounts.
ANALYSIS
Q1.Who is obliged to repay a company’s debts: the company, promoters, shareholders, or directors?
ANS: Firstly if a director is complying with the law then the company is obliged to repay its debt as it is a separate legal entity from its directors, shareholders. Director’s will …show more content…
He was charged with conspiracy and fraud and was declared as a wilful defaulter by the bank.
Q2. Are there circumstances under which promoters or directors could be asked to repay the loans taken by the company?
ANS: A Promoter is a person who participates in acts on behalf of a company that has to complete formal incorporation. If the company fails to complete the registration process, he may be liable for the contracts but he will not be liable to repay a company’s debt until and unless he is still holding a position in the company. In case of Kingfisher, Vijay Mallaya is a promoter as well as the Managing Director of the company and he gave personal assurance to the banks so he could be asked to repay the loans taken.
A director is a person who is responsible for managing the company’s activities.
As a company is a separate legal entity it is obliged to repay its debt but in case 1. A director falsely misrepresents a company for money and is proved guilty then he is obliged to repay company’s …show more content…
He is personally obliged to repay back.
Q3. What options do the banks have for recovery of the loans in a case like this one?
ANS To recover bank loans, banks form consortium to proceed with these loans together and sign a Master Debt Recast Agreement with the borrowing company to merge all the loans into a single term loan. Various assets and personal guarantee if any, that the company had pledged to the banks as security will be pooled together. The banks may use Sarfaesi Act under which it will give a notice to the company to clear their loans within 60 days failing to which, it will sale the securities to recover the loan.
In this case, banks also did the same, they form consortium and signed a master Debt Recast Agreement with the Kingfisher Airlines to merge all the loans into a single term loan. Some banks sold Kingfisher Airlines shares pledged against the loans, also sold Mallaya’s luxurious Kingfisher Villa in Goa for rs 73 crore and they also tried to sell the trademarks but failed as their value has gone down to nothing. They are still trying to recover the remaining debt.
Q4. What are the rights of a company’s shareholders against the promoter in a case like this