Compromises, Arrangements & Amalgamations with special reference to Protection of Minority & Dissenting Shareholders under Companies Act, 2013

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 Pg. No.

What and Why 3

How under Companies Act, 1956 7

Paradigm Shift 12

Comparison between Companies Act, 1956 andCompanies Act, 2013

16

Issue and Impact analysis 23

Indian Institute of Corporate Affairs (IICA)

WHAT & WHY


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/ entityRestructuring 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

of India

Companies Act, 2013

Income Tax (DTC)

Stamp Duty

Indirect Tax

(GST)

Regulatory aspects under various statues

Accounting

Standards

(IFRS)

SEBI and

Stock Exchanges

FEMA


HOW

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 to be followed

Procedure under Sec 391-394 of Companies Act, 1956


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

Procedure to be followed

Annexing the copy of High Court order with Articles of Association

Procedure under Sec 391-394 of Companies Act, 1956



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


04/11/2023

A paradigm shift

Introduction of NCLT

NCLT

CLB

High Court

BIFR


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 Amalgamationunder Companies Act, 2013

Representation has to give within a

period of 30 Days from the date of receipt of letter


Only those creditors can raise objection to the scheme who holds 5 %

of the total outstanding debt

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 Amalgamationunder 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 only inbound foreign

company mergers

Companies Act 1956

Permits outbound mergers i.e. amalgamation of Indian companies with Foreign companies

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

Companies Act 2013


Demergers

No specific definition of a

demerger under the current

Companies Act

Also, no prescribed accounting

treatment for recording

demergers

Companies Act 1956

Demerger defined to mean a demerger

as per Income-tax Act, 1961

Accounting treatment for demerger

also now prescribed

Such accounting treatment

applicable till the date of

notification of the relevant AS

Consistency with Income tax

definition?

Revaluation reserve beyond two

years allowed under the draft rules

Companies Act 2013


Treasury Shares

On merger of wholly or partially

owned subsidiary with its parent,

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

Prohibits companies from holding

shares in the name of trusts either on

its behalf or on behalf of any

subsidiaries or associate companies

on corporate restructuring

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


Merger of listed company with unlisted company

No specific provisions governing

merger of listed company with

unlisted company

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 for an exit route for

shareholders of the transferor company

Payment of value of shares and other

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?

Companies Act 2013


Exemption from court process

No provisions for exemption from

court process for corporate

reorganisations like amalgamation,

demerger, etc

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

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

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

(RBI, Income Tax etc)

Companies Act 2013



Rehabilitation of Sick Companies

All the Companies, whether Industrial Company or not, are covered

now

Criteria for erosion of 50% Net Worth erosion knocked off

Power has been entrusted with Secured Creditors, representing 50%

or More of the Debt of the Company.

Net Worth (old law )Vs Repayment of debt(New law ), Provisions of

new Act are on lines with Chapter XI of US Bankruptcy Law

Introduction of “Rehabilitation and Insolvency Fund”


Issue and Impact Analysis


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


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

That is what learning is, you suddenly

understand something you have understood

all your life, but in a new way

…………………………….. Doris Lessing


Chander Sawhney,

Vice President

Corporate Professionals Capital Pvt. Ltd.

SEBI registered merchant banker

Email : [email protected]

Mobile: 9810557353; Direct: 40622252

www.corporateprofessionals.com;

D-28, South Extension, Part-I, New Delhi-110049

mailto:[email protected]