"It's all about where your mind's at"

Compromises, Arrangements & Amalgamations with Special
reference to Protection of M...
Particulars

Pg. No.

What and Why

3

How under Companies Act, 1956

7

Paradigm Shift

12

Comparison between Companies ...
WHAT & WHY
Tools of Re- structuring

TOOLS OF RESTRUCTURING

Merger /
Amalgamation

Demerger

Financial
Reconstruction

Acquisition o...
Key Drivers for Re- structuring

Unlocking of Value and
its Sustainability

Restatement of Balance
Sheet

Business clarity...
Regulatory aspects under various statues

Takeover
Regulations
Accounting

Competition
Commission
of India

Standards
(IFR...
HOW
Procedure under Sec 391-394 of Companies Act, 1956

Procedure to be followed
Considering proposal for Merger and Amalgamat...
Procedure under Sec 391-394 of Companies Act, 1956

Procedure to be followed
Notice to Regional Director and Official Liqu...
Regulatory Moves in case of restructuring
involves listed Company
SEBI
SEBI has also increase Transparency and more disclo...
Acquisition of shares (Section – 395 of Companies Act, 1956)

Section 395 is the only provision in the Companies Act that ...
A paradigm shift

12/16/2013
Introduction of NCLT

High
Court

BIFR

CLB

NCLT
Indian Institute of Corporate Affairs (IICA)
Modifications for Merger and Amalgamation
under Companies Act, 2013
Companies Act 2013
If Reduction of Capital is the part...
Modifications for Merger and Amalgamation
under Companies Act, 2013
Companies Act 2013
Only those creditors can raise obje...
Comparison
Cross Border Mergers
Companies Act 1956

Permits

only

inbound

Companies Act 2013

foreign

 Permits
outbound
mergers
i...
Demergers
Companies Act 1956

 No

Companies Act 2013

 Demerger defined to mean a demerger
specific

demerger

definiti...
Treasury Shares
Companies Act 2013

Companies Act 1956

 Prohibits
On merger of wholly or partially
owned subsidiary with...
Merger of listed company with unlisted company
Companies Act 2013

Companies Act 1956
 On

merger

of

listed

unlisted

...
Exemption from court process
Companies Act 2013

Companies Act 1956

 Option to following companies to undertake
corporat...
Rehabilitation of Sick Companies

 All the Companies, whether Industrial Company or not, are covered
now
 Criteria for e...
Issue and Impact Analysis

Indian Institute of Corporate Affairs (IICA)
Issues

 Due to Involving of so many authorities the speed of Compromise Arrangement
may effect,
 In case of fast track ...
Impact

 Internal Restructuring will increase due to separate provision for Small
Companies (Only Private Companies) and ...
That is what learning is, you suddenly
understand something you have understood
all your life, but in a new way

………………………...
Chander Sawhney,
Vice President
Corporate Professionals Capital Pvt. Ltd.
SEBI registered merchant banker
Email : chander@...
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Compromises, Arrangements & Amalgamations with special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013

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A presentation ‘Compromises, Arrangements & Amalgamations with Special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013 ‘ given by Mr. Chander Sawhney at IICA

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Compromises, Arrangements & Amalgamations with special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013

  1. 1. "It's all about where your mind's at" Compromises, Arrangements & Amalgamations with Special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013
  2. 2. Particulars Pg. No. What and Why 3 How under Companies Act, 1956 7 Paradigm Shift 12 Comparison between Companies Act, 1956 and Companies Act, 2013 16 Issue and Impact analysis 23 Indian Institute of Corporate Affairs (IICA)
  3. 3. WHAT & WHY
  4. 4. Tools of Re- structuring TOOLS OF RESTRUCTURING Merger / Amalgamation Demerger Financial Reconstruction Acquisition of shares Consolidation of businesses / entities Divest non-core business Restructuring within the Company Acquiring interest in new business/ entity Deals with section 391- 394 Deals with section 395 NOTE –under Section 396 of Companies Act, 1956 Central Government may Amalgamate two Companies in public interest Indian Institute of Corporate Affairs (IICA)
  5. 5. Key Drivers for Re- structuring Unlocking of Value and its Sustainability Restatement of Balance Sheet Business clarity to Investors and Analysts Improving Governance Processes Positioning the businesses to be more competitive Making Businesswise Fund raising possible Business Risk Management Stock & Credit Rerating Investor Relations
  6. 6. Regulatory aspects under various statues Takeover Regulations Accounting Competition Commission of India Standards (IFRS) Companies Act, 2013 SEBI and Stock Exchanges Income Tax (DTC) Indirect Tax (GST) FEMA Stamp Duty Indian Institute of Corporate Affairs (IICA)
  7. 7. HOW
  8. 8. Procedure under Sec 391-394 of Companies Act, 1956 Procedure to be followed Considering proposal for Merger and Amalgamation Preparation of Scheme of Amalgamation , Valuation and Fairness Opinion (if Co. is listed) Approval of the Scheme by Board of Directors of the Companies Filing of Scheme with the designated Stock Exchanges for SEBI approval, if Co. is listed Filing of Application in High Court Convening of Shareholders and Creditors Meetings – decision reported to Court Indian Institute of Corporate Affairs (IICA)
  9. 9. Procedure under Sec 391-394 of Companies Act, 1956 Procedure to be followed Notice to Regional Director and Official Liquidator and submission of their NOC with High Court Final Hearing by High Court Obtaining High Court Order and filing with Registrar of Companies Annexing the copy of High Court order with Articles of Association Post Merger compliances Indian Institute of Corporate Affairs (IICA)
  10. 10. Regulatory Moves in case of restructuring involves listed Company SEBI SEBI has also increase Transparency and more disclosure to protect the interest of investors after 4th February and 21st May 2013 Circular Valuation by independent chartered account mandatory other than those specifically exempted. ''Valuation Report from an Independent Chartered Accountant'' is not required in cases where there is no change in the shareholding pattern of the listed company / resultant company. As per SEBI circular, vote by public shareholder through postal ballot and E-voting is required in such a case when additional shares have been allotted to promoters / promoter group, related party of promoter, associates of promoters. Indian Institute of Corporate Affairs (IICA)
  11. 11. Acquisition of shares (Section – 395 of Companies Act, 1956) Section 395 is the only provision in the Companies Act that deals with the compulsory acquisition of shares of minority shareholders. When 9/10th Value of shareholder accept the offer of Acquirer Company Acquirer company will give notice to Minority Dissenting Shareholders The Dissenting Shareholder have the right either negotiate the term condition or they have right to file their objection to Company Law Board Wide powers of discretion have been conferred on the Company Law Board to allow or reject an offer to squeeze out a minority group under section 395 Indian Institute of Corporate Affairs (IICA)
  12. 12. A paradigm shift 12/16/2013
  13. 13. Introduction of NCLT High Court BIFR CLB NCLT Indian Institute of Corporate Affairs (IICA)
  14. 14. Modifications for Merger and Amalgamation under Companies Act, 2013 Companies Act 2013 If Reduction of Capital is the part of Scheme then it has to be disclosed to NCLT through affidavit Notice of any meeting relating to any Compromise and Arrangement shall also be given to CG, Income Tax Authorities, RBI, SEBI, Stock Exchanges, OL, CCI for their representation Representation has to give within a period of 30 Days from the date of receipt of letter Notice of any meeting relating to any Compromise and Notice of the meeting will also specify the impact of scheme on Creditors, KMP, Promoter, Non-promoters Members Wider shareholder participation through voting by postal ballot possible Only those shareholder’s can raise objection to the scheme who holds not less than 10% of the shareholding Indian Institute of Corporate Affairs (IICA)
  15. 15. Modifications for Merger and Amalgamation under Companies Act, 2013 Companies Act 2013 Only those creditors can raise objection to the scheme who holds 5 % of the total outstanding debt The tribunal may provide the order for Exit option to dissenting shareholders based upon the valuation by Registered Valuer In case of buyout of a company when the majority holding ≥ 75 negotiate secretly for a higher price then such gain shall be shared with the minority shareholders on pro-rata basis Creditors meeting not required if > = 90% in value agree and confirm by affidavit Titled of Single window clearance has been taken off in case of Buy Back of shares (including cooling period of one year) Takeover through scheme of arrangement allowed in accordance with regulations to be framed by SEBI Certificate from Statutory Auditor that accounting treatment complies with prescribed accounting standards (Currently applicable to listed Companies)
  16. 16. Comparison
  17. 17. Cross Border Mergers Companies Act 1956 Permits only inbound Companies Act 2013 foreign  Permits outbound mergers i.e. amalgamation of Indian companies with Foreign companies company mergers  Requirements relating to inter alia notified foreign jurisdiction and compliance with prescribed rules applicable to inbound as well as outbound merger  Scope of inbound mergers may get restricted to notified jurisdictions Indian Institute of Corporate Affairs (IICA)
  18. 18. Demergers Companies Act 1956  No Companies Act 2013  Demerger defined to mean a demerger specific demerger definition under the of a current Companies Act  Also, no prescribed accounting treatment for as per Income-tax Act, 1961  Accounting treatment for demerger also now prescribed  Such recording accounting treatment applicable till the date of notification demergers of the relevant AS  Consistency with Income tax definition?  Revaluation reserve beyond two years allowed under the draft rules Indian Institute of Corporate Affairs (IICA)
  19. 19. Treasury Shares Companies Act 2013 Companies Act 1956  Prohibits On merger of wholly or partially owned subsidiary with its parent, new shares in lieu of shares held by parent itself may be allotted to a trust which will hold such shares for parent’s benefit companies from holding shares in the name of trusts either on its behalf or on behalf of any subsidiaries or associate companies on corporate restructuring  Negates the advantage available earlier to the company to indirectly hold such shares to provide access to liquidity  Would existing trust structures be grandfathered? Indian Institute of Corporate Affairs (IICA)
  20. 20. Merger of listed company with unlisted company Companies Act 2013 Companies Act 1956  On merger of listed unlisted company, company shall company until company the remain it with transferee an unlisted becomes a exit listed route company No specific provisions governing merger of listed company with unlisted company  Provision for an for shareholders of the transferor company  Payment of value of shares and other benefits in determined accordance price formula with pre- or as per prescribed valuation  Indirect way of minority squeeze-out / delisting? Impact on amalgamation tax if neutrality more than shareholders opt for exit route? Indian Institute of Corporate Affairs (IICA) of 25%
  21. 21. Exemption from court process Companies Act 2013 Companies Act 1956  Option to following companies to undertake corporate reorganizations like amalgamation, demerger, etc. without Court process  Between two or more small companies as No provisions for exemption from court process for defined in the Cos Act 2013. Small co. is corporate reorganisations private co. having capital <50 lacs or like turnover <2cr. amalgamation, demerger, etc  Between holding company and WOS  Other prescribed class of companies  Procedure involves Notice of the meeting to be sent to Registrar and Official Liquidators inviting suggestion / objections to scheme Approval from >=90% shareholders and >=90% of creditors (value) Representation of approval not required Indian Institute of Corporate Affairs (IICA) (RBI, Income Tax etc)
  22. 22. Rehabilitation of Sick Companies  All the Companies, whether Industrial Company or not, are covered now  Criteria for erosion of 50% Net Worth erosion knocked off  Power has been entrusted with Secured Creditors, representing 50% or More of the Debt of the Company.  Net Worth (old law )Vs Repayment of debt(New law ), Provisions of new Act are on lines with Chapter XI of US Bankruptcy Law  Introduction of “Rehabilitation and Insolvency Fund” Indian Institute of Corporate Affairs (IICA)
  23. 23. Issue and Impact Analysis Indian Institute of Corporate Affairs (IICA)
  24. 24. Issues  Due to Involving of so many authorities the speed of Compromise Arrangement may effect,  In case of fast track merger approval required form Members holding 90% Shares and Creditors holding 90% in value, this may be difficult,  Other statutory regulations need alignment;  Income Tax  RBI  SEBI  FEMA  Accounting Standards  Delisting regulations Indian Institute of Corporate Affairs (IICA)
  25. 25. Impact  Internal Restructuring will increase due to separate provision for Small Companies (Only Private Companies) and Holding and Wholly Owned Subsidiary Company under Fast Track Merger,  Only relevant issue on Compromise and arrangement will be raised due to prescribed limit for objecting the Scheme,  Dissenting shareholder will easily exit the Compromise and Arrangement,  There will be more Cross – Border Transaction in form of Merger and Amalgamation  Role of other authority like Income Tax, RBI etc becomes important, Indian Institute of Corporate Affairs (IICA)
  26. 26. That is what learning is, you suddenly understand something you have understood all your life, but in a new way …………………………….. Doris Lessing Indian Institute of Corporate Affairs (IICA)
  27. 27. Chander Sawhney, Vice President Corporate Professionals Capital Pvt. Ltd. SEBI registered merchant banker Email : chander@indiacp.com Mobile: 9810557353; Direct: 40622252 www.corporateprofessionals.com; D-28, South Extension, Part-I, New Delhi-110049

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