"It's all about where your mind's at" Compromises, - - PowerPoint PPT Presentation
"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 Particulars Pg. No. What and Why 3 How
Compromises, Arrangements & Amalgamations with Special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013 "It's all about where your mind's at"
Particulars
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)
Indian Institute of Corporate Affairs (IICA)
TOOLS OF RESTRUCTURING
Merger / Amalgamation Demerger Financial Reconstruction Acquisition of shares 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
Consolidation of businesses / entities Divest non-core business Acquiring interest in new business/ entity Restructuring within the Company
Tools of Re- structuring
Key Drivers for Re- structuring
Unlocking of Value and its Sustainability Positioning the businesses to be more competitive Business clarity to Investors and Analysts Improving Governance Processes Making Businesswise Fund raising possible Business Risk Management Restatement of Balance Sheet Investor Relations Stock & Credit Re- rating
Takeover Regulations Competition Commission
Companies Act, 2013 Income Tax (DTC) Stamp Duty Indirect Tax (GST)
Regulatory aspects under various statues
Accounting Standards (IFRS) SEBI and Stock Exchanges FEMA
Indian Institute of Corporate Affairs (IICA)
Approval of the Scheme by Board of Directors of the Companies Considering proposal for Merger and Amalgamation Preparation of Scheme of Amalgamation , Valuation and Fairness Opinion (if Co. is listed) 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
Procedure under Sec 391-394 of Companies Act, 1956
Indian Institute of Corporate Affairs (IICA)
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 Post Merger compliances
Annexing the copy of High Court order with Articles of Association
Procedure under Sec 391-394 of Companies Act, 1956
Indian Institute of Corporate Affairs (IICA)
Indian Institute of Corporate Affairs (IICA)
Regulatory Moves in case of restructuring involves listed Company
SEBI has also increase Transparency and more disclosure to protect the interest of investors after 4th February and 21st May 2013 Circular
SEBI
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.
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)
8/31/2016
A paradigm shift
Introduction of NCLT
CLB High Court BIFR
Indian Institute of Corporate Affairs (IICA)
If Reduction of Capital is the part of Scheme then it has to be disclosed to NCLT through affidavit
Companies Act 2013
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 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
Modifications for Merger and Amalgamation under Companies Act, 2013
Representation has to give within a period of 30 Days from the date of receipt of letter
Indian Institute of Corporate Affairs (IICA)
Only those creditors can raise objection to the scheme who holds 5 %
Companies Act 2013
The tribunal may provide the order for Exit option to dissenting shareholders based upon the valuation by Registered Valuer 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
Modifications for Merger and Amalgamation under Companies Act, 2013
Certificate from Statutory Auditor that accounting treatment complies with prescribed accounting standards (Currently applicable to listed Companies) 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
Comparison
Cross Border Mergers
Permits
inbound foreign company mergers
Companies Act 1956
mergers i.e. amalgamation
Indian companies with Foreign companies
relating to inter alia notified foreign jurisdiction and compliance with prescribed rules applicable to inbound as well as
Scope of inbound mergers may get restricted to notified jurisdictions
Companies Act 2013
Indian Institute of Corporate Affairs (IICA)
Demergers
specific definition
a demerger under the current Companies Act
treatment for recording demergers
Companies Act 1956
as per Income-tax Act, 1961
now prescribed Such accounting treatment applicable till the date of notification
Consistency with Income tax definition? Revaluation reserve beyond two years allowed under the draft rules
Companies Act 2013
Indian Institute of Corporate Affairs (IICA)
Treasury Shares
On merger of wholly or partially
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 Act 1956
companies from holding shares in the name of trusts either on its behalf
behalf
any subsidiaries or associate companies
Negates the advantage available earlier to the company to indirectly hold such shares to provide access to liquidity Would existing trust structures be grandfathered?
Companies Act 2013
Indian Institute of Corporate Affairs (IICA)
Merger of listed company with unlisted company
No specific provisions governing merger
listed company with unlisted company
Companies Act 1956
merger
listed company with unlisted company, the transferee company shall remain an unlisted company until it becomes a listed company
for an exit route for shareholders of the transferor company
benefits in accordance with pre- determined price formula
as per prescribed valuation Indirect way of minority squeeze-out / delisting? Impact
tax neutrality
amalgamation if more than 25% shareholders opt for exit route?
Companies Act 2013
Indian Institute of Corporate Affairs (IICA)
Exemption from court process
No provisions for exemption from court process for corporate reorganisations like amalgamation, demerger, etc
Companies Act 1956
corporate reorganizations like amalgamation, demerger, etc. without Court process Between two or more small companies as defined in the Cos Act 2013. Small co. is private co. having capital <50 lacs or turnover <2cr. Between holding company and WOS Other prescribed class of companies
Notice
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 (RBI, Income Tax etc)
Companies Act 2013
Indian Institute of Corporate Affairs (IICA)
Rehabilitation of Sick Companies
now
new Act are on lines with Chapter XI of US Bankruptcy Law
Indian Institute of Corporate Affairs (IICA)
Indian Institute of Corporate Affairs (IICA)
Issue and Impact Analysis
Indian Institute of Corporate Affairs (IICA)
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
Issues
Indian Institute of Corporate Affairs (IICA)
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,
Impact
Indian Institute of Corporate Affairs (IICA)
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