Satwinder SinghPartner, Vaish Associates Advocates
Central Council Member, ICSI
Compromise/ Arrangement/ Amalgamation
Other Restructuring Aspects
CORPORATE RESTRUCTURING
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
CORPORATE RESTRUCTURING
Compromise/ Arrangement/ Amalgamation
Other Restructuring Aspects
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
1956 Act
Impact vis-à-vis other legislations
Chapter
Sections
Authority
Section 390-396A
Chapter V
High Court
Rules Company (Court) Rules, 1959
2013 Act
Part XV
Section 230-240 (Section 234 is yet to be notified)
NCLT
CompaniesCompanies (Compromise, Arrangement and
Amalgamation) Rules, 2016and
NCLT (Procedure for reduction of share capital of Company)
Rules, 2016
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
TRANSITIONAL PROVISIONS:
Whether, pursuant to enactment of 2013 Act, the provisions of any other legislationswould require amendment to the extent of making reference to the relevantprovisions of the 2013 Act, instead of 1956 Act?
Section 8 of the General Clause Act, 1897 provides the following:"8. Construction of references to repealed enactments –
(1) Where this Act, or any (Central Act) or regulation made after the commencement of thisAct, repeals and re enacts, with or without notification, any provision of a former enactment,then references in any other enactment or in any instrument to the provision so repealedshall, unless a different intention appears, be construed as references to the provision so re-enacted. ......”
The intent of section 8(1) of the General Clauses Act, 1897 would be that if there isany reference of a section of the 1956 Act (which has been repealed and re-enacted) in any other enactment (say, Income tax Act, like under section 2(18),2(19AA), 115JB, etc) or in any instrument, unless a different intention appears, beconstrued as references to the provision so re-enacted (i.e. corresponding notifiedsection of the 2013 Act)
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Legislative Changes
TRANSITIONAL PROVISIONS:
Transfer of matters/pending proceedings to the Tribunal from High Courtunder Section 434(1) of the 2013 Act w.e.f 15th December, 2016 videnotification no. S.O. 3676(E) and 1119(E) dated 7th December, 2016 [2ndproviso to Section 465(1) of the 2013 Act]
Upon transfer of pending proceedings to Tribunal, the Tribunal may proceedto deal with such proceedings from the stage before their transfer [Section 434(1) (d) of the 2013 Act]
Winding up cases pending before the High Court of which orders arereserved or in which notice of petition is served on the respondent shall not betransferred to the NCLT [West Hills Realty Private Ltd. Vs. NeelkamalRealtors Tower Pvt. Ltd.]
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Legislative Changes
TRANSITIONAL PROVISIONS:
On 1st December, 2016 , any appeal preferred to the AAIFR; or any referencemade or enquiry pending to or before BIFR; or any proceeding of whatevernature pending before the AAIFR; or the BIFR under the SICA immediatelybefore the commencement of 2013 Act (“Pending Proceedings”) shall standabated
Fresh reference w.r.t abated Pending Proceedings to be made to the Tribunalunder the 2013 Act within 180 days from the commencement of 2013 Act
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Compromise/ Arrangement/ Amalgamation
Other Restructuring Aspects
CORPORATE RESTRUCTURING
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Applicant to disclose following in the affidavit to NCLT:
all material facts related to the company;
investigation /proceedings pending against the company;
reduction of share capital included in the scheme;
details of corporate debt restructuring, if any
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Application(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Disclosure about Corporate Debt Restructuring (“CDR”):
creditor’s responsibility statement;
safeguards for protection of other creditors;
report by auditor that fund requirement after approval of CDR willconform to liquidity test;
statement if company proposes to adopt CDR guidelines by RBI;
valuation report on shares, property and assets by registered valuer.
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Application(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Annexure to Notice:
Explanatory statement; Valuation report; Report by Directors explain its impact oneach class of shareholders, KMP, promoterand non-promoter; etc.
In case of merger/demerger/slumpsale/reconstruction, additional documents:
Expert report on valuation Supplementary Accounting Statement
Last Accounts –31st March 2016
More than 6 months
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Contents of Notice
(Section 230/ 232)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Notice of the meeting required to be sent to:
all creditors/ members/ debenture-holders Central Government Income-tax authoritiesRBI SEBI
Key Takeaway - In Securities and Exchange Board of India v. IkisanLimited, The Bombay High Court found that there was substantial delay inSEBI’s action in bringing the application for review. Although the schemewas sanctioned in 2011 and further complaints from shareholders followedsoon thereafter, SEBI acted only in 2013. In any event, given the grave natureof the allegations brought by SEBI, the court decided to delve into the meritsof the case. But, here too, the court did not find reason to overturn its earlierorder sanctioning the scheme. Hence, SEBI’s application was dismissed.
ROC, OL, CCI, Stock Exchanges other sectoral regulators/authorities likely to be affected
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Service of Notice
(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Service of Notice
(Section 230)
POTENTIAL ISSUE
• Whether the obligation to serve notice on the afore-mentioned regulatoryauthorities applies when meetings have been dispensed by NCLT?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
In person
Proxy
Postal Ballot
ElectronicVoting
Adoption
Minimum10%Shareholding
Minimum 5%OutstandingDebt
ByRegulatoryAuthorities
Representations
30 Days
Objection
At least 90%of the valueof creditors
Dispensation
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
Service of Notice
(Section 230)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
NCLT Order to be filed within 30 days of receipt of order Scheme to be effective from appointed date and not subsequent date Annual certification to RoC till the scheme is fully implemented
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Procedural Changes
NCLT Order(Section 230)
NCLT Order
Dividend in Cash
Option of conversion given to
Preference Shareholders
Reduction of Share Capital
Buyback of Shares
Variation of Rights
Exit Offer
Takeover OfferFee on
Authorized Capital
Dividend in the form of equity
shares
OR
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Compromise/ Arrangement/ Amalgamation
Other Restructuring Aspects
CORPORATE RESTRUCTURING
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
70% Shares
Merger
Consideration in lieu of A’s
holding in B
Treasury Shares issued by A to be held by Trust on A’s behalf
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Treasury Shares (Section 232/233)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Transferee Company not to hold Treasury
Shares
Own name Own Behalf
On behalf of any of its Subsidiary
Name of Trust On behalf of
Associate Company
POTENTIAL ISSUE• Whether the bar on issuance of treasury shares will also apply to shares
issued to the trustee in respect of fractional entitlement ?
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Treasury Shares (Section 232/233)
Either
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Transferor Listed
Transferee Unlisted
Amalgamated Unlisted
Transferee company shall remain unlisted until it becomes a listedcompany
Shareholders opting to exit :
to be paid value of shares
value not to be less than as per SEBI valuation guidelines
Merger of listed company with unlisted company may have majortax implications, in as much as the amalgamated company would betreated as a company in which public is not substantially interested
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Merger of listed with unlisted company
(section 232)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Merger / Amalgamation of : Small Companies upto paid capital of Rs. 50 lakh and turnover upto
Rs. 2 crores Holding and WOS such other class as may be prescribed
Notice of the Scheme inviting objections to be sent to: ROC; OL; Persons affected by Scheme
Scheme to be approved by members holding 90% shares / by 90% value ofcreditors
Companies to file declaration of solvency
POTENTIAL ISSUE• Who would be regarded as “persons affected by scheme” ?
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Fast Track Mergers
(Section 233)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Foreign Company
Foreign Company
India
Notified Jurisdiction
Indian Company
Indian Company
1956 Act 2013 Act
RBI Approval may not be required
Prior Approval of RBI
mer
ger
mer
ger
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Cross Border Merger
(Section 234)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Foreign Company
Foreign Company
India
Notified Jurisdiction
Indian Company
Indian Company
1956 Act 2013 Act
Prior Approval of RBI
mer
ger
mer
ger
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Cross Border Merger
(Section 234)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Hospital Hospital Education
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Mergers of Charitable
Companies (Section 8)
Section 8 company to merge with section 8 company only having similarobjects
Overrules Walvis Flour Mills Case wherein trading companies were mergedwith section 25 companies
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Majority Protection ?
Minority Protection ?
Corporate Restructuring
Compromise/ Arrangement/ Amalgamation
Conceptual Changes
Minority Protection
(Section 235/ 236)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Compromise/ Arrangement/ Amalgamation
Other Restructuring Aspects
CORPORATE RESTRUCTURING
ConceptualChanges
Capital Reduction
Further Issue
Capital Restructuring
ProceduralChanges
Contractual Arrangements
Others
Buyback
Redemption of preference
shares
Bonus Issue
Inter-se shareholding
Entrenchment
Forward / Insider Dealing
Legislative Changes
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Further issue of shares can be made to any person, other than existingshareholders, by passing special resolution, if the price is determined byvaluation report of a registered valuer, subject to such conditions as may beprescribed
Erstwhile provision conferring right of pre-emption on the existingshareholders after the expiry of two years from the date of incorporation or afterone year from the date of first allotment, whichever is earlier, has beendispensed with
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Further Issue of Capital
(Section 62)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Approving Authority – NCLT
Key Conditions:
No arrears in repayment of deposits (or interest payable thereon)
Notice to CG, ROC, SEBI (listed company) and creditors – Representation within 3months, else deemed “no objection”
Accounting treatment to be in conformity with AS and auditors’ certificatecertifying such compliance
Power of NCLT to dispense with requirement of consent of the creditor in case ofreduction of capital by way of either diminution in any liability in respect of the unpaidshare capital or payment to any shareholder of any unpaid share capital has beenwithdrawn
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Capital Reduction
(Section 66)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Approving Authority – NCLT
Key Conditions:
No arrears in repayment of deposits (or interest payable thereon)
Notice to CG, ROC, SEBI (listed company) and creditors – Representation within 3months, else deemed “no objection”
Accounting treatment to be in conformity with AS and auditors’ certificatecertifying such compliance
Power of NCLT to dispense with requirement of consent of the creditor in case ofreduction of capital by way of either diminution in any liability in respect of the unpaidshare capital or payment to any shareholder of any unpaid share capital has beenwithdrawn
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Capital Reduction
(Section 66)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Cooling period of 1 year applicable even in case of buy back by specialresolution
Route of buy-back from odd lots – withdrawn
Buy-back possible in case of following defaults, provided the defaults havebeen remedied, and 3 yrs have lapsed:
repayment of deposit/interest payable
redemption of preference shares/debentures
payment of dividend
repayment of any term loan or interest
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Buyback(Section 68-70)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Issue of redeemable preference shares for a period more than 20 yrs but upto 30years
ONLY for funding of specified infrastructure projects (viz., power generation,trading and distribution of power, transportation, telecommunication services,etc.); and
Subject to annual redemption of minimum 10% of such preference shares, atthe shareholders’ option to whom such preference shares are issued from 21st
year onward or earlier, on proportionate basis.
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Redemption of Preference Shares
(Section 55)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Inability to redeem any preference shares (or payment of dividend on suchshares)
Redemption by further issue of preference shares equal to the amount due onthe preference shares which have not been redeemed (including the dividendthereon) with the approval of: (i) 3/4th (in value) of preference shareholderswhose preference shares are due to be redeemed; and (ii) Tribunal.
Tribunal may order redemption of preference shares of dissenting preferenceshareholders forthwith
Certain class of companies (to be prescribed) and whose financial statementscomply with accounting standards to be prescribed for such class of companiesunder section 133 have been allowed to pay premium on redemption only outof profits of the company as against an option given to other companies to payout of profits or securities premium account
Corporate Restructuring
Other Restructuring
Aspects
Capital Restructuring
Redemption of Preference Shares
(Section 55)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Critical Issues in
Restructuring
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Companies Act, 1956 (“1956 Act”) facilitates compromise, arrangement orreconstruction of a business (sections 390 to 396A of 1956 Act);
The terms ‘merger’ and ‘amalgamation’ are synonymous;
In amalgamation, the undertaking, i.e. property, assets and liability of one ormore company (amalgamating company) are absorbed by an existing or a newcompany (amalgamated company);
The amalgamating company integrates with amalgamated company and theformer is dissolved without winding up
Corporate Restructuring
Critical Issues in
Restructuring
What is Merger or
Amalgamation?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Merger of two or more companies in such a manner that all assets andliabilities of the amalgamating company immediately before the amalgamation,become the assets and liabilities of the amalgamated company
and
Shareholders holding not less than 3/4th in value of the shares in theamalgamating company become shareholders of the amalgamated company byvirtue of the amalgamation
Corporate Restructuring
Critical Issues in
Restructuring
Amalgamation(Section 2(1B) Income
Tax Act, 1961)
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Section 2(19AA) of the Income-tax Act defines demerger as under:
‘demerger’ in relation to companies means the transfer, pursuant to a scheme ofarrangement under section 391 to 394 of the Companies Act, 1956 by a demergedcompany of its one or more undertakings to the resulting company in such a mannerthat-
(i) all the property of the undertaking, being transferred by the demerged company,immediately before the demerger, becomes the property of the resulting companyby virtue of demerger;
(ii) all the liabilities relatable to the undertaking, being transferred by the demergedcompany, immediately before the demerger, become the liabilities of the resultingcompany by virtue of the demerger;
(iii) the property and the liabilities of the undertaking or undertakings, beingtransferred by the demerged company are transferred at values appearing in itsbooks of account immediately before the demerger;
(iv) the resulting company issues, in consideration of the demerger, its shares to theshareholders of the demerged company on a proportionate basis;
Corporate Restructuring
Critical Issues in
Restructuring
What is Demerger?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
(v) the shareholders holding not less than three-fourth in value of shares in the demergedcompany(other than shares already held therein immediately before the demerger, orby a nominee for, the resulting company or, its subsidiary) becomeshareholders of the resulting company or companies by virtue of the demerger;otherwise than as a result of the acquisition of the property or assets of the demergedor any undertaking thereof by the resulting company;
(vi) the transfer of the undertaking is on a going concern basis.
Corporate Restructuring
Critical Issues in
Restructuring
What is Demerger?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
“Slump Sale” means the transfer of one or more undertakings as a result of thesale for a lump sale consideration without values being assigned to individualassets and liabilities in such sales. [Sec. 2(42C) of the Income Tax Act, 1961]
Determination of the value of an asset or liability for the sole purpose ofpayment of stamp duty, registration fee or other similar taxes or fees shall notbe regarded as assignment of values to individual assets or liabilities
Corporate Restructuring
Critical Issues in
Restructuring
What is Slump Sale?
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Appointed Date: date on which assets and liabilities of the transferor companyvest in and stand transferred to the transferee company
Accounts on the appointed date form the basis for valuation of shares anddetermination of share exchange ratio
Appointed date relevant for the purpose of assessment of income of the transferorand transferee companies
[In Re: Marshall Sons (1997) 88 Comp Cases 528 SC]
Effective Date: date on which scheme is complete & effective, i.e. certified copy ofthe High Court order is filed with Registrar of Company or the last of theapprovals obtained
From the effective date amalgamation becomes effective and transferor companystands dissolved
Corporate Restructuring
Important aspects in Drafting of Scheme
Appointed Date &
Effective Date
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
One of the most important part of the M&A Scheme
Valuation is an art and not a science
The Process involves:
evaluating the value of the merging company or its business and/or of itsshares
evaluating the securities of the issuing company on a stand alone basis
determining the Exchange Ratio for the securities so as to ensure fairconsideration
The Report is subject to scrutiny by the lending and investment institutions,Regional Director, Official Liquidator
Corporate Restructuring
Valuation Aspects
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Approval of the Scheme and the Valuation Report by majority of the shareholdersand creditors does not mean that the Court is bound to treat the same as faitaccompli-Court can view it from the test of fairness
On some occasion, the Court does appoint independent valuers where dissentingshareholders or creditors make a strong case for such an action
Valuation report is to be mandatorily filed with the NCLT
Valuation report shall be made by a registered valuer, and till the registration ofpersons as valuers is prescribed under section 247 of the Act, the valuation reportshall be made by an independent merchant banker who is registered with the SEBIor an independent chartered accountant in practice having a minimum experienceof 10 years. (Explanation (b) to Rule 6(3) of the Companies (Compromise,Arrangement and Amalgamation) Rules, 2016)
Corporate Restructuring
Valuation Aspects
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Class must be confined to those persons whose rights are not so dissimilar as tomake it impossible for them to consult together with a view to their commoninterest;
The group who are styled as class must have commonality of interest andordinarily be homogeneous and they have been offered identical compromise –(In Re: Maneck Chowk and Ahmedabad Manufacturing Ltd. (1970) 40 Com Cas819);
The difference in terms of the scheme can only be the criteria for identifying classfor the purpose of convening a separate meeting of such class
Corporate Restructuring
What constitute “Class”
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Suppose “A” is being merged with “B”
Likely Situations:
a) “A” is a shareholder of “B”
b) “B” is a shareholder of “A”
c) “C”, subsidiary of “B” is a shareholder of “A”
May result into reduction/cancellation of share capital
Controversy over adoption of separate procedure under section 100 set at rest - InRe: Manekchowk and Ahmedabad Manufacturing Company Limited.(Supra)
Corporate Restructuring
Cross Holdings
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Sanction of a Scheme without power to amalgamate in the memorandum ofassociation
[Hari Krishna Lohia v. Hoolungoree Tea Co. Ltd. (1996) : 4 Comp LJ 353 (Cal) ]
Increase of authorized capital - Post amalgamation events cannot be made subject-matter of objections to scheme of compromise or arrangement
[Winfield Agro Services (P) Ltd. v. Hindustan Antipest (P) Ltd. (1996) : 3 Comp. LJ347 (AP)]
Change of object clause through the Scheme [In Re: HCL Infosystems Ltd.]
Corporate Restructuring
Single Window
Clearance
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Change of name of the amalgamated company to the name of amalgamatingcompany [In Re: Novapan India Ltd., (1997) 88 Com Cases, 596]
Change of Registered Office of the transferee company (In the matter of IndoRama Synthetics Ltd.)
Reduction of Share capital [In Re: ManekChowk and Ahmedabad Mfg. Co. Ltd]
Conversion of status of a company (Private Limited to Public Limited and vice-versa) [In Re: Maharishi Ayurveda Corporation Pvt. Ltd.]
Corporate Restructuring
Single Window
Clearance
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Change of name of the amalgamated company to the name of amalgamatingcompany [In Re: Novapan India Ltd., (1997) 88 Com Cases, 596]
Change of Registered Office of the transferee company (In the matter of IndoRama Synthetics Ltd.)
Reduction of Share capital [In Re: ManekChowk and Ahmedabad Mfg. Co. Ltd]
Conversion of status of a company (Private Limited to Public Limited and vice-versa) [In Re: Maharishi Ayurveda Corporation Pvt. Ltd.]
Corporate Restructuring
Single Window
Clearance
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Accounting Aspects
Amalgamation Demerger Slump sale
Governed by AS-14 Not Governed by Any Specific AS
Corporate Restructuring
Accounting Treatment
Important aspects in Drafting of Scheme
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Accounting aspects: Key Provisions of AS 14
2 Types of merger
Amalgamation in the nature of merger
Amalgamation in the nature of purchase
Pooling of interest method Purchase method
Corporate Restructuring
Accounting Treatment
Important aspects in Drafting of Scheme
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Accounting aspects: Key Provisions of AS 14
Amalgamation in the nature of merger
Amalgamation in the nature of purchase
Treatment
Identity maintained Identity not maintainedReserves
Aggregated with corresponding balance
or transferred to general reserve
Loses identityProfit & Loss A/c
Adjusted in reserveCapital reserve /
goodwill created and amortised
Difference between the consideration and
assets taken over
Corporate Restructuring
Accounting Treatment
Important aspects in Drafting of Scheme
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Corporate Restructuring
Accounting Treatment
Important aspects in Drafting of Scheme
Ind AS 103 prescribes purchase ( acquisition) method for accounting of acquisitions.Business combinations involving entities or businesses under common control shallbe accounted for using the pooling of interests method.
Description Purchase Method Pooling of Interest Method
Measurement of
Identifiable assets
and liabilities of
acquiree
All identifiable assets and liabilities have to be
measured at the acquisition at fair value.
The assets and liabilities of the
combining entities are reflected at their
carrying Amounts ,no adjustments are
made to reflect fair values.
Intangible assets
not recognised by
the acquiree
The acquirer’s application of the recognition
principle and conditions may result in recognising
some assets and liabilities that the acquiree had not
previously recognised as assets and liabilities in its
financial statements – even if such assets or
liabilities were not recognised by the acquire.
No new assets or liabilities are
recognised
Balance of retained
earnings in the
books of acquiree
\transferor
The balance of the retained earnings appearing in
the financial statements of the acquiree never get
reflected in the financial statements of the acquirer.
The balance of the retained earnings
appearing in the financial statements
of the transferor is aggregated with the
corresponding balance appearing in
the financial statements of the
transferee. Alternatively, it is
transferred to General Reserve, if any.
Listing of a company without IPO
Activity A Activity B Activity B
A Ltd. (Listed Company) B Ltd. (Listing through Scheme)
Compliance of SEBI (Listing Obligations and DisclosureRequirements) Regulations, 2015 and Circular of SEBI CIR/CIR/CFD/CMD/16/2015 dated 30th November, 2015
Corporate Restructuring
Back Door Listing
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
What do stock exchanges normally consider?
Entry norms compliance
Pre & Post Scheme shareholding pattern & financial statements
Net worth post merger
Continuous listing requirements
Resumed trading price after cooling off period
Continuous follow up required
Lock in requirements
Placing the Information Memorandum on website-post approval of theScheme
Corporate Restructuring
Consideration by Stock
Exchanges
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Important aspects in Drafting of Scheme
Description of companies
Capital Structure of companies and its alteration
Rationale of the Scheme
Transfer of Assets and liabilities of transferor company
Continuation of legal proceedings
Declaration of Dividend
Charges
Inter-part Transactions
Transfer of employees
Conduct of business till effective date
Conditionality of Scheme
Corporate Restructuring
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Other aspects in Drafting of Scheme
The Court’s Order sanctioning scheme of arrangement is an instrument ofconveyance;
Stamp duty in Delhi on instrument of conveyance for transfer of property is 3%on the consideration set forth in the instrument and in case of transfer ofimmovable property, and additional transfer duty of 3% of the considerationamount shall be applicable
Stamp duty in Maharashtra on order of High Court under section 394 of the 1956Act is 10% of the aggregate market value of shares issued or allotted andconsideration paid for such amalgamation.
For amalgamation, the amount of duty shall not exceed
5% of the market value of immovable property of Transferor Companysituated in state of Maharashtra; or
5% of the aggregate of market value of shares issued or allotted andconsideration paid;
whichever is higher
Corporate Restructuring
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Stamp Duty Aspects
For Reconstruction or Demerger, duty shall not exceed
5% of the true market value of immovable property situated in state ofMaharashtra transferred by Demerged Company to the Resulting Company;or
0.7% of the aggregate of market value of shares issued or allotted to theResulting company and consideration paid ;
whichever is higher
Corporate Restructuring
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Stamp Duty Aspects
In L and T Finance Limited vs The Superintendent of Stamps and the Collector ofStamps, Mumbai (Appeal No. 36/2005) wherein 4 companies (i.e. transferorcompanies) were merged with L and T Finance Limited, (i.e. Transferee Company)and out of which 4th transferor company was a WoS’s of the transferee company.Pursuant to the said merger, the shares held by transferee company in the 4th
transferor company were cancelled and no consideration was paid to the 4th
transferor company or its shareholders; the point for consideration before CCRAwas whether transferee company was liable to pay stamp duty for transfer ofassets and liabilities of the 4th transferor company as no consideration was paid bythe transferee company. CCRA while deciding the issue in favour of the transfereecompany stated that the stamp duty is payable on consideration and since the 4th
transferor company was the WoS’s of the transferee company, no considerationwas paid under the scheme for merger of 4th transferor company with thetransferee company. CCRA also held that the transferee company is the owner ofthe 4th transferor company, irrespective of the fact that legally it is a separateentity and in such circumstances, there cannot be a conveyance from the owner toitself.
Corporate Restructuring
Satwinder Singh, Partner, Vaish Associates AdvocatesCentral Council Member, ICSI
Stamp Duty Aspects
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Disclaimer: While every care has been taken to ensure accuracy of this presentation, Vaish Associates shall not assume any liability/ responsibility for any
errors that might creep in. The material herein does not constitute/ substitute professional advice that may be required before acting on any matter.
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