"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 under Companies Act, 1956 7 Paradigm Shift 12 Comparison between Companies Act, 1956 16 and Companies Act, 2013 Issue and Impact analysis 23 Indian Institute of Corporate Affairs (IICA)
WHAT & WHY
Tools of Re- structuring TOOLS OF RESTRUCTURING Merger / Financial Acquisition of Demerger Amalgamation Reconstruction shares Consolidation of Divest non-core Restructuring within the Acquiring interest in businesses / entities business Company 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)
Key Drivers for Re- structuring Unlocking of Value and Restatement of Balance its Sustainability Sheet Business clarity to Investors and Analysts Improving Governance Positioning the Processes businesses to be more competitive Making Businesswise Fund raising possible Business Risk Management Stock & Credit Re- rating Investor Relations
Regulatory aspects under various statues Takeover Regulations Accounting Competition Commission Standards of India (IFRS) Companies SEBI and Act, 2013 Stock Exchanges Income Tax ( DTC) Indirect Tax (GST) Stamp Duty FEMA Indian Institute of Corporate Affairs (IICA)
HOW
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)
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)
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)
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)
A paradigm shift 8/31/2016
Introduction of NCLT BIFR High Court 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 of Scheme then it has to be disclosed to NCLT through affidavit Representation has to give within a Notice of any meeting relating to any Compromise and Arrangement shall also period of 30 Days be given to CG, Income Tax Authorities, RBI, SEBI, Stock Exchanges, OL, CCI from the date of receipt of letter 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 Indian Institute of Corporate Affairs (IICA)
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)
Comparison
Cross Border Mergers Companies Act 1956 Companies Act 2013 Permits outbound mergers i.e. amalgamation of Indian companies with Foreign companies Permits only inbound foreign 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)
Demergers Companies Act 1956 Companies Act 2013 Demerger defined to mean a demerger No specific definition of a as per Income-tax Act, 1961 demerger under the current Accounting treatment for demerger also Companies Act now prescribed Also, no prescribed accounting Such accounting treatment treatment for recording 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)
Treasury Shares Companies Act 2013 Companies Act 1956 Prohibits companies from holding On merger of wholly or partially shares in the name of trusts either on owned subsidiary with its parent, its behalf or on behalf of any new shares in lieu of shares held subsidiaries or associate companies by parent itself may be allotted to a on corporate restructuring trust which will hold such shares Negates the advantage available for parent’s benefit 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)
Merger of listed company with unlisted company Companies Act 2013 Companies Act 1956 On merger of listed company with unlisted company, the transferee company shall remain an unlisted company until it becomes a listed company Provision No specific provisions governing for an exit route for shareholders of the transferor company merger of listed company with Payment of value of shares and other unlisted company benefits in accordance with pre- determined price formula or as per prescribed valuation Indirect way of minority squeeze-out / delisting? Impact on tax neutrality of amalgamation if more than 25% shareholders opt for exit route? Indian Institute of Corporate Affairs (IICA)
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 defined in the Cos Act 2013. Small co. is court process for corporate private co. having capital <50 lacs or reorganisations like amalgamation, turnover <2cr. 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)
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