Why Dunzo is Battling Financial Insolvency and Vendor Dues

Dunzo received legal notices from several companies, including Google India, Facebook India Online Services Private Limited (FBI), Cupshup, Koo, and Glance.
Why Dunzo is Battling Financial Insolvency and Vendor Dues

The Bengaluru Bench of the National Company Law Tribunal (NCLT) has given two weeks to Reliance-backed Quick Commerce Dunzo to settle its dues with its vendor, Betterplace Safety Solutions. 

The aim of the extension is to prevent another insolvency proceeding against the firm, as reported by the Mint. A bench led by Justices Manoj Kumar Dubey and K. Biswal decided to hear the matter again on June 19. 

While asking for two weeks' time, Dunzo's counsel said that the company has been in serious settlement discussions with its lenders. The company added that they are also receiving investments. However, the counsel for Betterplace told the tribunal that they have been hearing about a settlement for almost a year. 

Read: The Dunzo Dilemma: A Deep Dive Into The Hurdles, Departures, And Financial Worries

Where did it all start? 

One of the operational creditors of Dunzo, Betterplace Safety Solutions Pvt. Ltd., moved to the NCLT against Dunzo over pending dues. The company filed an insolvency application under Section 9 of the Insolvency and Bankruptcy Code (IBC). 

After a payment default, operational creditors may file for bankruptcy under Section 9 of the NCLT in February this year. Reportedly, Dunzo owes Rs 4 crore to Betterplace. 

The debt Dunzo owes to Betterplace arises from numerous services such as background verification, recruitment of delivery staff, asset management, and merchandise provision, all outlined in a master service agreement and platform subscription agreement. Even after granting several extensions, Dunzo has reportedly not paid these outstanding dues, leading Betterplace to seek legal action. 

Betterplace isn’t the only company that has filed a legal case against Dunzo. In November last year, a manufacturer of sustainable packaging solutions, Velvin Packaging Solutions Private Limited, filed for an insolvency plea. In March, the NCLT warned Dunzo that it would impose a moratorium on the start-up if it didn’t address its unpaid dues. 

Amidst an ongoing financial crunch, several vendors have sent legal notices to Dunzo. The start-up received legal notices from companies, including Google India, Nilenso, Clover Ventures, Facebook India Online Services Private Limited (FBI), Cupshup, Koo, and Glance. The total amount that Dunzo owes to these companies is Rs 11.4 crore. 

A look at the company’s financials

In FY23, Dunzo reported a loss of Rs 1,801.8 crore, almost four times larger than the previous year. This was even though operating revenue increased by more than four times to Rs 226.6 crore in FY23. 

Due to its financial conditions, the firm has also reduced its operations and laid off several employees. The company laid off more than 1,300 employees in 2023 and hadn’t reportedly cleared its employees' dues 

Amid the ongoing financial crunch, the firm’s auditor, Deloitte, expressed doubt over the start-up's ability to continue as a going concern. In accounting terms, a firm is called a ‘going concern’ when it possesses sufficient resources as well as revenue streams to remain operational and avoid bankruptcy. Basically, Deloitte suggested there are significant doubts about Dunzo's future capability to generate enough revenue through which it can sustain its operations. 

Top-level exits 

Lightbox is the latest investor to leave Dunzo’s board. Venture capital firm Lightbox is the third largest investor in Dunzo, with a 11.1 per cent share. The first two investors, Reliance Retail, which owns 25.8 per cent, and Google, which invested 19.3 per cent in Dunzo, left the company’s board in August 2023. The company has seen several key exits, including those of its co-founders, Dalvir Suri and Mukund Jha, in 2023. 

Recently, the Mint reported that Dunzo is in late-stage talks to raise $22-$25 million in a mix of both debt and equity from new and existing investors. This funding will reportedly help the start-up clear its liabilities and pay the salaries of its employees. Will Dunzo be a phoenix and rise from its own ashes, or will it drown in a sea of unsuccessful start-ups? It remains to be seen.

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