'WeWork India's image may take a hit as global entity files for bankruptcy'

Meanwhile WeWork India, backed by Embassy Group, has maintained that it operates independently of WeWork Global, and its operations will not be affected in any manner

WeWork India on Tuesday said it operates independently, and its global unit’s bankruptcy filing in the US will not impact its business, even as the industry experts warned the company’s brand image is likely to take a hit.

WeWork Inc. filed for bankruptcy on Monday, capping a tumultuous period that saw the once high-flying startup navigate a failed initial public offering and Covid-19-induced lockdowns. 

WeWork Inc.'s bankruptcy highlights the legal separation aspect of a business structure, according to Jitender Ahlawat, founder and managing partner, HJA & Associates LLP.

“When a subsidiary is legally independent from its parent company, it operates on its own with its assets, contracts, and financial responsibilities. This means WeWork India can carry on with its operations without significant disruptions,” he said.

However, there are subtle repercussions, he cautioned.

“WeWork Inc.'s bankruptcy might impact WeWork India's reputation and how the market perceives it. Additionally, if there are undisclosed shared resources or dependencies between the two entities, this could pose challenges. WeWork India should proactively maintain transparency and open communication to reassure stakeholders about its independence, and its well-planned measures for business continuity,” Ahlawat added.

Meanwhile, WeWork India, backed by the Embassy group, has maintained it operates independently of WeWork Global, and its operations will not be affected.

“It is a separate entity in itself, and we are not a part of this strategic reorganisation process. The Chapter 11 filing does not impact the operations of the global entity as it continues to remain in possession of its business, operating as usual. The process restructures the debts and the leases of WeWork Global in the US and Canada. During this period, we will continue to hold the rights to use the brand name as part of the operating agreement while serving our members, landlords, and partners as usual,” said Kiran Virwani, the chief executive officer (CEO) at WeWork India.

WeWork Inc. holds approximately 27 per cent ownership in the Indian business. The remaining 73 per cent stake belongs to Embassy group, an office development company in India.

“There will be no implications on the India business since it is a standalone entity. However, there will be a squeeze in funds available as a result of the bankruptcy proceedings in the US,” said Abhishek Malhotra, managing partner of TMT Law Practice, a law firm.

The Chapter 11 proceedings, however, are proceedings for resolving the insolvency that the company finds itself in. Hence, the company’s existing investors or new buyers of the firm can re-commence the firm’s operations after paying off the creditors. Once that happens, it may become business as usual.

Regardless, the bankruptcy proceedings may have a resultant adverse financial trickle-down effect on the resources of the promoters.

“This may indirectly impact the future plans of the promoters as regards the Indian entity, without any apparent legal issue arising in the normal course, subject to the specific decision of the case in the US as per US laws,” said Jyoti Prakash Gadia, managing director, Resurgent India, a Sebi-registered Category 1 Merchant Bank that aids in insolvency and bankruptcy.  

Chennai-based law firm Tatva Legal has clarified that an Indian entity of a foreign company has an independent corporate existence.

“Hence, the bankruptcy proceedings against the parent company shall not immediately make its Indian subsidiary go out of business. In the normal course, the subsidiary is deemed to be an extension of the parent company, by virtue of the board of management or the shareholding of the former being controlled by the latter,” said R. Venkat Raman, partner, Tatva Legal.

“In the process of bankruptcy of the parent, a change of board of the subsidiary is inevitable. As long as such new board wishes to continue the substantial part of the existing business model, it should be business as usual for WeWork India,” Raman observed.

In the latest financial report shared by WeWork India, the company earned revenues of Rs 392.4 crore in the first quarter of this financial year (Q1FY24).

In the same quarter, it added 7,353 desks with a rate of 78 per cent average occupancy.

During FY23, WeWork India’s revenue stood at Rs 1,352.5 crore and added 10,300 desks at an 81 per cent average occupancy rate.

WeWork India is targeting long-term sustainable growth by adding another 20,000 desks year-over-year. It is targeting revenue growth of 40-50 per cent during the current financial year. In August this year, WeWork India leased 54,000 sq. ft. office space in New Delhi, its 50th workspace in the country.