Corporate Restructuring: Role of Stock Exchanges

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Corporate Restructuring: Role of Stock Exchanges

  1. 1. CORPORATE RESTRUCTURING - Role of Stock Exchanges Pavan Kumar Vijay
  2. 2. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER
  3. 3. MERGER “ Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition ”. MERGER REVERSE MERGER “ As a commercial term, it means when a Healthy Company (in terms of size, capital or listed company)is merging in a Weak Company (in terms of size, or unlisted)”. SECTION – 391to 394 of Companies Act, 1956
  4. 4. DEMERGER Demerger “ Separation of a large Company into two or more smaller organisation” SECTION – 2(19AA) of Income Tax act, 1961.
  5. 5. REDUCTION OF CAPITAL Reduction of Capital “ Extinguishing or Reducing the liability of members to the extent it is in excess of the needs of the Company” SECTION – 100-105 of Companies Act, 1956
  6. 6. TYPES OF MERGER <ul><li>Unlisted with Listed </li></ul><ul><li>Listed with Unlisted </li></ul><ul><li>Merger with Holding Company </li></ul><ul><li>Merger with Group Company </li></ul><ul><li>Healthy Company with Weak Company </li></ul>
  7. 7. STOCK EXCHANGE’S ROLE REQUIREMENTS PERSPECTIVE Listing Agreement Compliances Stock Exchange Norms Stock Exchange’s Views Compliance of Other laws
  8. 8. Listing Agreement Compliances <ul><li>Clause 24(f):- </li></ul><ul><li>“ The Company agrees that it shall file any scheme/petition proposed to be filed before any Court or Tribunal under Sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange, for approval , at least a month before it is presented to the Court or Tribunal.” </li></ul><ul><li>Clause 24(a):- </li></ul><ul><li>“ The Company agrees to obtain ‘in-principle’ approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing further shares or securities.” </li></ul><ul><li>Clause 40A :- </li></ul><ul><li>“ The Company should pursuant to merger & demerger should comply with continuous listing requirements.” </li></ul>
  9. 9. Stock Exchange Norms Presently, Stock Exchange(s) are providing various other norms before giving approval to the Companies for ‘ Merger’ , ‘ Demerger’ ‘ Reduction of Capital’
  10. 10. Stock Exchange Norms..contd <ul><li>Minimum Capital Requirements </li></ul><ul><li>Issued & paid up Equity Capital – Rs 10 crores </li></ul><ul><li>(if there is a change in management/control) </li></ul><ul><li>OR </li></ul><ul><li>Issued & paid up Equity Capital – Rs 3 crores </li></ul><ul><li>(If there is no change in management/control) </li></ul><ul><li>AND </li></ul><ul><li>Minimum Net Worth – 20 crores </li></ul><ul><li>(Post amalgamation) </li></ul><ul><li>*BSE Stipulations </li></ul>
  11. 11. <ul><li>Continuous Listing Norms </li></ul><ul><li>(Transferee Co is Listed Co. & Transferor Co is Unlisted Co.) </li></ul><ul><li>Non- Promoter Holding – 25% of Post -merger Capital </li></ul><ul><li>* (The entire holding of the shareholders of the transferor company be excluded) </li></ul><ul><li>If Non- Promoter Holding – is less than 25% of Post merger capital, then the company has to go for offer for sale of the excess portion. </li></ul><ul><li>*BSE Stipulations </li></ul>Stock Exchange Norms..contd
  12. 12. Stock Exchange Norms..contd LOCK IN REQUIRMENTS “ 25% of the newly issued capital pursuant to the scheme of amalgamation should be kept under lock in for 3 yrs from the date of listing” “ The lock in provisions are varied by the stock exchange on case to case basis” *BSE Stipulations
  13. 13. Compliance of Other laws “ The Stock Exchange(s) also considers the compliance of provisions of other laws, regulations, rules etc applicable on the Company”
  14. 15. O <ul><li>Valuations Analysis </li></ul><ul><li>No undue benefit to Promoters/Particular group </li></ul><ul><li>Investors interest not to be affected </li></ul><ul><li>Back door Entry for the benefit of listing </li></ul><ul><li>Change in Management/control </li></ul>BSERVATIONS Stock Exchange’s Views

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