Zee Admitted To Insolvency: What Happens To Its Merger With Sony Now?

The merger between media behemoths Zee Entertainment Enterprises Ltd. and Sony Pictures Networks India Pvt. has come to a standstill after the insolvency court admitted Zee Entertainment Enterprises Ltd. to insolvency on Wednesday. This means that the approval process for the merger in the company law court cannot proceed until the insolvency case is decided.

Under IBC, once a company is admitted to insolvency, moratorium kicks in barring any transfer of assets.

Options available with Zee Entertainment are meager, Ajay Shaw, partner at DSK Legal, told BQ Prime. The only way Zee can go ahead with the merger would be to get the insolvency petition withdrawn, he said.

Besides Section 12A that allows for withdrawal of an insolvency application, the only other option available with Zee is to get an order setting aside the admission from the appellate tribunal, Divyanshu Pandey, partner at S&R Associates, said. "Although the chances are slim, it does have a slight chance to succeed owing to Vidarbha Industries judgment," he said.

In this case, the apex court concluded that Insolvency and Bankruptcy Code does not aim to penalise solvent companies, which have temporarily defaulted on payment of its financial debts. And that NCLTs have discretion in admitting insolvency applications.

The bigger question, according to Pandey, is if Sony will be willing to wait while Zee goes through the appeal or settlement process.

Punit Goenka, chief executive officer of Zee Entertainment, told BQ Prime that the company is committed to conclude the merger.

In August last year, Zee had approached the NCLT seeking approval for its merger with Sony. Its board of directors approved the scheme in December 2022, and 90% of the secured creditors had given the company a no-objection-certificate for the merger. Basis this, the tribunal had dispensed with the requirement of creditors' meet under company law.

Zee currently owes 90% of its secured debt to two major secured creditors, HDFC Bank Ltd. and Kotak Mahindra Bank Ltd. However, the debt is minor, totaling less than Rs 33 crore as on Dec. 31, 2021.

The merger application is currently in at the second stage before the NCLT. It will be taken up on March 9. In the second stage of mergers, the court decides the date for the final hearing and disseminates the information to all the stakeholders through a public notice. Any objections against the merger are also invited at this stage.

In the last hearing, the court was unable to move ahead with the process on account of objections from major creditors of Zee, including Axis Finance Ltd., IndusInd Bank Ltd., IDBI Bank Ltd., and IPRS.

Besides NCLT, all necessary regulatory approvals—including the approval of the Competition Commission of India—has been granted for the merger.