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CORPORATE RESTRUCTURING Presentation by :  Mr. Virender Ganda, Vishvas Associates New Delhi
CORPORATE RESTRUCTURING <ul><li>MERGER/ AMALGAMATION </li></ul><ul><li>DEMERGER </li></ul><ul><li>SLUMP SALE </li></ul><ul...
SEBI   TAKE OVER CODE SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 Comprehensive Regulations g...
SEBI   TAKE OVER CODE <ul><li>Exemptions (Regulation 3) </li></ul><ul><li>Allotment in Public Issue </li></ul><ul><li>Allo...
SEBI   TAKE OVER CODE <ul><li>- Qualifying  Indian Promoters and Foreign  </li></ul><ul><li>Collaborators </li></ul><ul><l...
<ul><li>Acquisition of shares by way of transmission; </li></ul><ul><li>pursuant to scheme </li></ul><ul><li>- under Sec. ...
Threshold Limits <ul><li>Regulation 10 -  Acquisition of 15% or more of the shares or voting rights of any Company </li></...
Consolidation of Holdings <ul><li>Regulation 11 </li></ul><ul><li>(1) </li></ul><ul><li>No acquirer who together with PACs...
<ul><li>(2) </li></ul><ul><li>No acquirer together with PACs </li></ul><ul><li>Holding 55% or more but less than 75%  shar...
Disclosure Requirements <ul><li>Event Based Disclosures- Regulation 7 </li></ul><ul><li>By the Acquirer under Regulation 7...
<ul><li>Under Regulation 7(1A) </li></ul><ul><li>Any acquirer who has acquired shares or voting rights under creeping acqu...
<ul><li>By the Company </li></ul><ul><li>Every Company whose shares are acquired u/r 7(1) & (1A) </li></ul><ul><li>Disclos...
Continual Disclosures -Regulation 8 <ul><li>By the persons holding more than 15% shares or voting rights </li></ul><ul><li...
<ul><li>By the Promoters </li></ul><ul><li>Promoter or person having control over the Company </li></ul><ul><li>disclose n...
<ul><li>By the Promoters </li></ul><ul><li>Promoter or person having control over the Company </li></ul><ul><li>disclose n...
<ul><li>By the Company </li></ul><ul><li>Every Company </li></ul><ul><li>make yearly disclosure in respect of  persons hol...
MERGER/ AMALGAMATION <ul><li>Section 2(1B) of Income Tax Act, </li></ul><ul><li>Merger of two or more companies   </li></u...
<ul><li>A Ltd.  B Ltd. </li></ul><ul><li>  </li></ul><ul><li>  merged with </li></ul><ul><li>  </li></ul><ul><li>  </li></...
DE-MERGER Section 2(19AA) of the Income-tax Act  ‘ Demerger’  transfer, pursuant to a scheme of arrangement under Section ...
Demerger Contd. <ul><li>all the property   and liabilities  of the undertaking becomes the property of the resulting compa...
Demerger Contd. <ul><li>(iv) the shareholders holding not less than 3/4 th  in value of shares in the demerged company (ot...
UNDERTAKING Explanation 1 to Section 2(19AA) of Income Tax Act Undertaking shall include any part of an undertaking, or a ...
<ul><li>A Ltd. </li></ul><ul><li>Undertaking I  Undertaking III </li></ul><ul><li>demerged </li></ul><ul><li>to   Undertak...
SLUMP SALE Section 2(42C) of the Income-tax Act  Slump Sale means- the transfer of one or more undertakings as a result of...
SUBSTANTIVE ISSUES <ul><li>Valuation </li></ul><ul><li>- Undertaking </li></ul><ul><li>- Exchange Ratio </li></ul><ul><li>...
STAMP DUTY ON MERGER State of Maharashtra Rate of Stamp Duty 10% of aggregate of market value of shares issued in exchange...
State of Gujarat If Aggregate amount (Mkt. value or face value of shares, (whichever is higher) + amt. of consideration fo...
State of Karnataka  10 rupees for every Rs. 1000 or part thereof,  on market value of the property of the transferor Compa...
CASE STUDY Case I Listed Companies:- A Ltd B Ltd Shareholding in Both Companies: Promoters’ – 15.65% Public  -  84.35% Obj...
<ul><li>Options Available: </li></ul><ul><li>Acquire from the market under Take  </li></ul><ul><li>Over Regulations </li><...
Incorporation of two new Companies X Ltd.  Y Ltd. 50%  50%  50%  50% B Ltd.  Y Ltd.  A Ltd.  X Ltd. X Ltd. merged with  A ...
Case II A Ltd.  B Ltd 40%  60%  70%   30% Promoters  Public  A Ltd.  Others (Holding Co.) Incorporation of 2 new Companies...
<ul><li>A Ltd’s share in B Ltd. (transferred) </li></ul><ul><li>  X Ltd.  Y Ltd. </li></ul><ul><li>  35%  35% </li></ul><u...
<ul><li>Thank You </li></ul>
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Transcript of "Outside cp knowledge presentation outside cp knowledge presentation merger"

  1. 1. CORPORATE RESTRUCTURING Presentation by : Mr. Virender Ganda, Vishvas Associates New Delhi
  2. 2. CORPORATE RESTRUCTURING <ul><li>MERGER/ AMALGAMATION </li></ul><ul><li>DEMERGER </li></ul><ul><li>SLUMP SALE </li></ul><ul><li>TAKE-OVER </li></ul><ul><li>FINANCIAL RESTRUCTURING </li></ul><ul><li>REDUCTION OF CAPITAL </li></ul><ul><li>BUY BACK OF SHARES ETC. </li></ul>
  3. 3. SEBI TAKE OVER CODE SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 Comprehensive Regulations governing acquisition of shares and take over of a listed Company. (Enforced w.e.f 20.02.1997)
  4. 4. SEBI TAKE OVER CODE <ul><li>Exemptions (Regulation 3) </li></ul><ul><li>Allotment in Public Issue </li></ul><ul><li>Allotment in Rights Issue </li></ul><ul><li>Allotment to Underwriters </li></ul><ul><li>Inter-se Transfer of shares amongst: </li></ul><ul><li>- Group as defined in MRTP Act, </li></ul><ul><li>1969 </li></ul><ul><li>- Relatives </li></ul>
  5. 5. SEBI TAKE OVER CODE <ul><li>- Qualifying Indian Promoters and Foreign </li></ul><ul><li>Collaborators </li></ul><ul><li>- Qualifying Promoters </li></ul><ul><li>- the acquirer and persons acting in </li></ul><ul><li>concert </li></ul><ul><li>Acquisition of shares in the ordinary course of business by stock-broker, registered market maker, Public Financial Institutions, Banks etc. </li></ul>
  6. 6. <ul><li>Acquisition of shares by way of transmission; </li></ul><ul><li>pursuant to scheme </li></ul><ul><li>- under Sec. 18 of SICA </li></ul><ul><li>- Merger/ amalgamation </li></ul><ul><li>Acquisition of shares of unlisted </li></ul><ul><li>companies </li></ul>
  7. 7. Threshold Limits <ul><li>Regulation 10 - Acquisition of 15% or more of the shares or voting rights of any Company </li></ul><ul><li>No acquisition of shares or voting rights </li></ul><ul><li>taken together with shares/voting rights already held by him or by PACs </li></ul><ul><li>entitling to exercise 15% or more of </li></ul><ul><li>voting rights in a Company </li></ul><ul><li>Unless a Public Announcement to </li></ul><ul><li>acquire shares is made </li></ul>
  8. 8. Consolidation of Holdings <ul><li>Regulation 11 </li></ul><ul><li>(1) </li></ul><ul><li>No acquirer who together with PACs </li></ul><ul><li>has acquired 15% or more but less than </li></ul><ul><li>55% of shares or voting rights </li></ul><ul><li>shall acquire either himself or with PACs </li></ul><ul><li>additional shares or voting rights </li></ul><ul><li>Entitling him to exercise more than 5% </li></ul><ul><li>of voting rights in any f.y. ending </li></ul><ul><li>March 31 </li></ul><ul><li>Unless he makes a Public Announcement to acquire shares </li></ul>
  9. 9. <ul><li>(2) </li></ul><ul><li>No acquirer together with PACs </li></ul><ul><li>Holding 55% or more but less than 75% shares or voting rights in the Company </li></ul><ul><li>shall acquire either by himself or with PACs </li></ul><ul><li>Any additional shares or voting rights </li></ul><ul><li>unless he makes Public Announcement to acquire shares </li></ul>
  10. 10. Disclosure Requirements <ul><li>Event Based Disclosures- Regulation 7 </li></ul><ul><li>By the Acquirer under Regulation 7(1) </li></ul><ul><li>Every Acquirer on acquiring (including existing holding) more than 5% or 10% or 14% or 54% or 74% Shares or Voting Rights </li></ul><ul><li>Disclose his aggregate shareholding at every stage </li></ul><ul><li>to the Company </li></ul><ul><li>Within 2 days of acquisition of shares and voting rights. </li></ul>
  11. 11. <ul><li>Under Regulation 7(1A) </li></ul><ul><li>Any acquirer who has acquired shares or voting rights under creeping acquisition </li></ul><ul><li>Disclose purchase or sale aggregating 2% or more </li></ul><ul><li>To the Company and the stock exchanges </li></ul><ul><li>Within 2 days of such purchase or sale </li></ul>
  12. 12. <ul><li>By the Company </li></ul><ul><li>Every Company whose shares are acquired u/r 7(1) & (1A) </li></ul><ul><li>Disclose the aggregate number of shares held by each of such persons </li></ul><ul><li>To all the stock exchanges </li></ul><ul><li>within 7 days of receipt of intimation from the acquirer </li></ul>
  13. 13. Continual Disclosures -Regulation 8 <ul><li>By the persons holding more than 15% shares or voting rights </li></ul><ul><li>Every person holding more than 15% shares or voting rights in the Company </li></ul><ul><li>Make yearly disclosure of his holdings </li></ul><ul><li>to the Company </li></ul><ul><li>within 21 days from the f.y. ending March 31 </li></ul>
  14. 14. <ul><li>By the Promoters </li></ul><ul><li>Promoter or person having control over the Company </li></ul><ul><li>disclose no. & % of shares held by him and by PACs </li></ul><ul><li>to the Company </li></ul><ul><li>within 21 days from the f.y. ending March 31 as well as record date of the Company </li></ul>
  15. 15. <ul><li>By the Promoters </li></ul><ul><li>Promoter or person having control over the Company </li></ul><ul><li>disclose no. & % of shares held by him and by PACs </li></ul><ul><li>to the Company </li></ul><ul><li>within 21 days from the f.y. ending March 31 as well as record date of the Company </li></ul>
  16. 16. <ul><li>By the Company </li></ul><ul><li>Every Company </li></ul><ul><li>make yearly disclosure in respect of persons holding more than 15% shares as well as of holdings of promoters and PACs. </li></ul><ul><li>to the stock exchanges </li></ul><ul><li>within 30 days from the f.y. ending March 31 and record date </li></ul><ul><li>Register in specified format shall be maintained to record the information received under this regulation. </li></ul>
  17. 17. MERGER/ AMALGAMATION <ul><li>Section 2(1B) of Income Tax Act, </li></ul><ul><li>Merger of two or more companies </li></ul><ul><li>all assets and liabilities of the amalgamating </li></ul><ul><li>company </li></ul><ul><li>become </li></ul><ul><li>the assets and liabilities of the amalgamated company </li></ul><ul><li>Shareholders holding </li></ul><ul><li>not less than 3/4th in value of the shares </li></ul><ul><li>in the amalgamating company </li></ul><ul><li>become </li></ul><ul><li>shareholders of the amalgamated company </li></ul>
  18. 18. <ul><li>A Ltd. B Ltd. </li></ul><ul><li> </li></ul><ul><li> merged with </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> C Ltd. </li></ul><ul><li>A Ltd & B Ltd. to get wound up </li></ul><ul><li>Shareholders of A Ltd. & B Ltd. to </li></ul><ul><li>become shareholders of C Ltd. </li></ul>
  19. 19. DE-MERGER Section 2(19AA) of the Income-tax Act ‘ Demerger’ transfer, pursuant to a scheme of arrangement under Section 391 to 394 of the Companies Act, 1956 by a demerged company of its one or more undertakings to the resulting company in such a manner that-
  20. 20. Demerger Contd. <ul><li>all the property and liabilities of the undertaking becomes the property of the resulting company; </li></ul><ul><li>the property and the liabilities are transferred at book values </li></ul><ul><li>the resulting company issues its shares to the shareholders of the demerged company on a proportionate basis; </li></ul>
  21. 21. Demerger Contd. <ul><li>(iv) the shareholders holding not less than 3/4 th in value of shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies; </li></ul><ul><li>(v) the transfer of the undertaking as an on going concern. </li></ul>
  22. 22. UNDERTAKING Explanation 1 to Section 2(19AA) of Income Tax Act Undertaking shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not consulting a business activity.
  23. 23. <ul><li>A Ltd. </li></ul><ul><li>Undertaking I Undertaking III </li></ul><ul><li>demerged </li></ul><ul><li>to Undertaking II </li></ul><ul><li>B Ltd. </li></ul><ul><li>Shareholders of A Ltd. to be issued shares by </li></ul><ul><li>B Ltd. on proportionate basis. </li></ul><ul><li>- Share capital of A Ltd. to be reduced </li></ul><ul><li>proportionately </li></ul>
  24. 24. SLUMP SALE Section 2(42C) of the Income-tax Act Slump Sale means- the transfer of one or more undertakings as a result of the sale for a lump consideration without values being assigned to individual assets and liabilities in such case.
  25. 25. SUBSTANTIVE ISSUES <ul><li>Valuation </li></ul><ul><li>- Undertaking </li></ul><ul><li>- Exchange Ratio </li></ul><ul><li>Promoters’ Equity </li></ul><ul><li>0 </li></ul><ul><li>Reduction/ Cancellation of Capital </li></ul><ul><li>Authorised Share Capital </li></ul><ul><li>Stamp Duty on </li></ul><ul><li>- Fixed Assets </li></ul><ul><li>- Scheme </li></ul><ul><li>Sales Tax </li></ul><ul><li>Capital Gains </li></ul><ul><li>Merger of Foreign Company with an Indian Company </li></ul>
  26. 26. STAMP DUTY ON MERGER State of Maharashtra Rate of Stamp Duty 10% of aggregate of market value of shares issued in exchange & amount of consideration paid for amalgamation Maximum limit 7% of market value of immovable property located in Maharashtra “ or” 0.7% of aggregate of mkt. value of shares issued & amt. paid for merger, whichever is higher
  27. 27. State of Gujarat If Aggregate amount (Mkt. value or face value of shares, (whichever is higher) + amt. of consideration for merger: (i) > Rs. 100 crores- 2% of aggregate amount (ii ) <100 crores> Rs. 500 crores - Rs. 2 crores + 1% of amt. which exceeds Rs. 100 crores (iii) > Rs. 500 crores - Rs. 6 crores + 0.5% of amt. which exceeds Rs. 500 crores
  28. 28. State of Karnataka 10 rupees for every Rs. 1000 or part thereof, on market value of the property of the transferor Company located in Karnataka State of Rajasthan 10% of the market value of the property
  29. 29. CASE STUDY Case I Listed Companies:- A Ltd B Ltd Shareholding in Both Companies: Promoters’ – 15.65% Public - 84.35% Object: To enhance the Promoters’ Equity in each Company
  30. 30. <ul><li>Options Available: </li></ul><ul><li>Acquire from the market under Take </li></ul><ul><li>Over Regulations </li></ul><ul><li>Creeping Acquisition without triggering </li></ul><ul><li>take over code </li></ul><ul><li>Buy-Back of shares under Section 77A </li></ul><ul><li>of the Companies Act. </li></ul><ul><li>- Restructuring through Scheme of </li></ul><ul><li>Arrangement </li></ul>
  31. 31. Incorporation of two new Companies X Ltd. Y Ltd. 50% 50% 50% 50% B Ltd. Y Ltd. A Ltd. X Ltd. X Ltd. merged with A Ltd. (post merger shareholding) 10.39% 22% 22% 45.61% Promoters A Ltd. X Ltd. Y Ltd. Promoters- 54.39% Similarly, Y Ltd. merged with B Ltd. (post merger shareholding) 10.39% 22% 22% 45% P romoters B Ltd X Ltd. Y Ltd. Promoters- 54.39%
  32. 32. Case II A Ltd. B Ltd 40% 60% 70% 30% Promoters Public A Ltd. Others (Holding Co.) Incorporation of 2 new Companies X Ltd. Y Ltd. A Ltd. Y Ltd. A Ltd. X Ltd. 50% 50% 50% 50%
  33. 33. <ul><li>A Ltd’s share in B Ltd. (transferred) </li></ul><ul><li> X Ltd. Y Ltd. </li></ul><ul><li> 35% 35% </li></ul><ul><li>B Ltd. merged with A Ltd. </li></ul><ul><li>As a result of merger: </li></ul><ul><li>- X Ltd. and Y Ltd. being shareholder of B Ltd. </li></ul><ul><li>become shareholder of A Ltd. </li></ul><ul><li> Shareholding of A Ltd. </li></ul><ul><li>Promoters X Ltd Y Ltd Public </li></ul><ul><li> Promoters 65% 35% </li></ul>
  34. 34. <ul><li>Thank You </li></ul>
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