PROCEDURE FOR MERGER & ACQUISITION FOR MERGER & AMALGAMATION UNDER COMPANIES ACT 2013 for listed and unlisted companies

PROCEDURE FOR MERGER & ACQUISITION FOR MERGER & AMALGAMATION UNDER COMPANIES ACT 2013 for listed and unlisted companies

The following matters should be given more weight before going for merger and acquisition.

·         Income-tax impact on the Companies and their shareholders, e.g., capital gains on the transfer, set-off of losses and depreciation, transfer of deduction, cost of assets to the Transferee, etc.

·         Stamp duty, e.g., levy, concessions, etc.

·         Companies Act provisions

·         Competition Law provisions

·         SEBI’s prior permission

·         SEBI Takeover Regulations and SEBI DIP Guidelines

·         Listing Agreement provisions and procedural requirements

·         FEMA and FIPB Policies

·         VAT – transfer of Exemption Schemes and tax on the transfer of business

·         Transfer of CENVAT Credit and Excise Registration

·         Transfer of Licences under EPCG (Export Promotion Council Guarantee) Scheme, Project Import Regulations, etc.

·         Transfer of tenancies under Rent Control Laws

·         Labour law implications, e.g., Govt. permission for closure of a unit with more than 100 workers

·         Permissions required under contractual agreements, e.g., lenders, Govt. Ministries in case of infrastructure / telecom projects, etc.

·         Transfer of environmental licences

·         Accounting implications of a particular method

The following matters should be given more weight before going for merger and acquisition.


·         Income-tax impact on the Companies and their shareholders, e.g., capital gains on the transfer, set-off of losses and depreciation, transfer of deduction, cost of assets to the Transferee, etc.

Broad Checklist for Mergers

·         Examine whether a Forward Merger or a Reverse Merger is more beneficial: the factors to be considered are tax benefits, listing, etc.

·         In case of Listed Companies, obtain SEBI’s prior permission

·         Ensure that the Main Objects or the incidental objects of the Memorandum of Association contain the power to amalgamate.

·         Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.

·         Consider whether the merger would be covered under the Competition Act and hence, one which requires the permission of the Competition Commission.

·         Valuation of shares for fixing the Share Exchange Ratio

·         Fairness Report from a Merchant Banker on the Valuation Report in the case of Listed Companies

·         Convene a Board Meeting to approving the Scheme of Amalgamation

·         Obtain the consent/approvals, if any, required prior to the merger

·         Prepare the Scheme of Amalgamation and Explanatory Statement.

·         The Explanatory Statement forwarded must disclose the pre and post-merger capital structure and shareholding pattern

·         File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal.

LISTED COMPANIES 

Listed companies must also submit to the stock exchange, an Auditors’ Certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.

Listed Companies must comply with the requirements of SEBI Cir CFD /DIL/1/2014 which lays down various procedures for obtaining SEBI’s permission. These include, obtaining share holders’ approval through Postal Ballot and eVoting in certain cases, 

e.g., where the promoters would be issued additional shares under the Scheme, where related parties are involved in the Scheme, etc.

·         Receive the approval of the Stock Exchange and the SEBI

·         Apply to the National Company Law Tribunal in an applicable Form 

·         Send a copy of the Application to the ROC within 30 days

·         Send the Notice (in Form No. 36) convening the General Meeting to every member and creditor as directed by the Court along with the Explanatory Statement and Form of Proxy (in Form No. 37). Ensure that the Notice reaches the member at least 21 days before the date of the GM.

·         If the Court directs give an advertisement of the notice meeting (Form 38)

·         Hold the Meeting and pass Resolutions approving the Scheme. Listed Companies may need Postal Ballot and eVoting as explained above.

·         File the Report of the Meeting’s Chairman (in Form No. 39) with the Court.

·         Prepare a Petition in Form No. 40 for obtaining the Court’s sanction to the Scheme.

·         At least 10 days before the date fixed by the Court for the hearing of the Petition, advertise the date of hearing

·         Obtain the Official Liquidator’s Report

·         Receive the Court’s Order sanctioning the Scheme

·         File a copy of the Order of the Court with the ROC within 30 days from the date of receipt of the Order.

·         Allot the securities to the share holders of the Transferor Company

·         Attach a copy of the Court Order with every copy of the Memorandum and Articles of Association

Merger Scheme

The Merger Scheme / Scheme of Amalgamation must cover the following:

1.     Definitions of important terms such as Appointed Date, Effective Date, Record Date for issue of shares, etc.

2.     Background, capital, history, etc. of the Transferor and Transferee Company

3.     Rationale of the Scheme

4.     Amalgamation of Transferor with Transferee Company and vesting of its undertaking, assets and liabilities in the Transferee Company. Reduction of capital, if any, of the Transferee

5.     Issue of securities, etc. by Transferee to share holders of Transferor, Share Exchange Ratio, Valuation Report, etc.

6.     Increase in Authorised Capital of Transferee, if required

7.     The Date from when the Scheme comes into operation

8.     Accounting Treatment of the amalgamation by the Transferee

9.     All contracts, deeds, bonds, instruments, executed by the Transferor to be binding on and enforceable against the Transferee

10.                        All legal proceedings, by or against the Transferor to be binding on and enforceable against the Transferee

11.                        Transferee to carry on Transferor’ business until the Effective Date

12.                        Applications to relevant NCLT for their approval

13.                        All employees of Transferor to become the employees of Transferee

14.                        No dividends, bonus, rights, further shares to be issued by either company without prior approval of the other company

15.                        The approvals / sanctions upon which the Scheme is conditional and effect of non-receipt of such approvals

16.                        Sharing of merger costs and expenses

17.                        Change of Board of Directors of Transferee, if any

18.                        Dissolution without Winding-Up of Transferor

19.                        Change of name and registered office of the Transferee, if applicable

Additional Checklist for Demergers

·         Ensure that what is being Demerged is an Undertaking as per the Income-tax Act or else the tax benefits may be jeopardised

·         Decide whether the Resulting Company would be a New Company or an Existing Company

·         Reduction in capital of the Demerged Company

·         Accounting Adjustments, if any

·         Resulting Company to take over the assets and liabilities of the Demerged Company

·         Allot the securities to the share holders of the Transferor Company

·         Checklist for Slump Sale

·         Ensure that what is being sold satisfies the conditions of an ‘undertaking’ under the Income-tax Act

·         Ensure that the Main Objects in Memorandum of Association of Transferor contain the power to sell a business undertaking and in case of Transferee contain object(s) for carrying on such business

·         Audited Balance Sheets of the undertaking / business to be sold

·         Decide upon the lump sum consideration and its mode of payment

·         Compute the tax impact u/s. 50B of the Income-tax Act

·         Ascertain the stamp duty and VAT impact, if any, on the sale

·         Draft the Slump Sale Agreement

·         U/s. 180 of the Companies Act, 2013, a sale of an undertaking (as defined) requires a Special Resolution of the Members. Private / Public Companies with more than 200 members and all Listed Companies require a Postal Ballot.

Draft the Postal Ballot Notice + Draft Resolution + Explanatory Statement to be sent to the Members.

·         File special resolution with ROC.

·         Execute the Slump Sale Agreement

·         Give possession of the undertaking / business to the Transferee

·         Prepare a letter of possession

·         Board Resolution for giving and receiving the possession of the business

·         Pass Accounting entries for sale of business undertaking in the books

·         Take steps for transfer of CENVAT Credit

NOTE: The Checklist for Mergers / Demergers has been prepared as per the provisions of the Companies Act, 1956 since the relevant provisions of the 2013 Act have not yet been notified.

Courtesy: Mumbai Chartered Accountant’s Society 

Whether any unrelated party has the right to inspect the books of accounts of a company – No- says NCLT

Whether any unrelated party has the right to inspect the books of accounts of a company – No- says NCLT

One another torture from AnilKumar Poddar has been put to end 

An interesting legal point is raised in “Anilkumar Poddar v. Darshan Securities (P.) Ltd. [2016] 76 taxmann.com 194 (NCLT - Mumubai)” , wherein the Mumbai NCLT bench has held that an unrelated party is not allowed to harass the company by using section 94(2) of the CA 2013.

Section 94(2) of the Companies Act, 2013 provided the power of inspection of certain registers and returns of a Company to the following: Any member, debenture-holder, other security holder or beneficial owner without payment of any fees and by any other person on payment of such fees as may be prescribed.

The words “any other person" seem to provides powers to any person to demand for registers of even a private limited or listed company or a public company or a small company, whether or not the person is  related to the company.

However, the National Company Law Tribunal, Mumbai Bench has held that if a person is neither a shareholder and nor does he have any claim or commercial interest in a Company, he will not be entitled to demand for the inspection of the said registers.

By applying the doctrine of “ejesdem generis” which means “of the same kind" to the section 94(2) of the Companies Act, 2013 which means “of the same kind" the NCLT has implied that the meaning of “any other person" should get its colour from the words preceding it i.e. “any member, debenture-holder, other security holder or beneficial owner".

Hence if there is absolutely no commercial connection with a Company then the person shall not be covered under the words “any other person".

This is so in case of Private Limited Companies as the public can get only limited information with respect to such companies.

NCLT verdict can be said to be more beneficial to Private Limited Companies as many unrelated individuals to the Company have been misusing the provisions of Section 94 of CA 2013  and demanding the privilege of inspecting the registers and returns of a private limited Company.

Source- NCLT Mumbai web site

Why You have to become an Insolvency Practitioner?

Why You have to become an Insolvency Practitioner?

Article Written by : CA Rohit  Ruwatia 

Insolvency is possibly the most demanding career option a professional can undertake. It is certainly one of the most challenging, involving and rewarding.

Insolvency practitioners can find themselves running businesses, constructing and negotiating deals or investigating and advising on the viability of a business and its restructuring (and, sometimes, the integrity of its directors). The work of the insolvency practitioner affects the lives, prospects and livelihoods of both creditors and debtors. Insolvency work is as much about people as it is about figures. Insolvency practitioners need the skills to deal with creditors, anxious directors, concerned employees and a range of other stakeholders in the business. The insolvency scene is always changing. Even in these cases, often regarded as the ‘end of the line’ for businesses, imagination and determination are still needed to preserve as much of the business (and its associated jobs) as possible, or as a last resort to get the best possible price for its assets.

 Even where a formal insolvency procedure is necessary, in many cases a positive approach to the rescue of businesses and jobs can be taken through the application of administrations, administrative receivership and voluntary arrangements. In the current environment, with personal debt at record levels, it is vitally important individuals get the correct advice about the options open to them to resolve their difficulties. As licensed insolvency practitioners are trained in all aspects of the law and procedure, they are best placed to provide that advice and only they can act as supervisors of individual voluntary arrangements or as trustees in bankruptcies. The profession will be able to rescue increasing numbers of jobs and businesses in recent years, both because of legislative changes and the changing attitudes of creditors. Overall, some 20 per cent of insolvent businesses are rescued in part or as a whole and one in every six insolvent individuals enters a voluntary arrangement as an alternative to bankruptcy. 

OPPORTUNITIES IN CORPORATE INSOLVENCY AND RESTRUCTURING 

Just like a person requires treatment to treat his disease, a sick company also requires some form of treatment to overcome its problem of debts. This treatment may be in the form of restructuring of a company. Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Alternate reasons for restructuring include a change of ownership or ownership structure, de-merger, or a response to a crisis or major change in the business such as bankruptcy, re positioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring. There are a broad range of opportunities that arise from corporate insolvency and financial restructurings.

1. Spotting and evaluating distressed companies for restructuring and rescue planning.

2. Reviewing the various risks involved in restructuring.

3. Developing risk mitigation strategies.

4. Working out a detailed bankable financial structure of the business.

5. Working out a detailed plan for restructuring the business from all angles.

6. Assessment of distressed assets, cash position, due diligence and turnaround feasibility.

7. Advice on optimum utilization of resources.

8. Drafting insolvency petitions.

9. Representation and registration of sick companies with BIFR.

10. Representation before the Debt Recovery Tribunals.

11. Representation before the NCLT or NCLAT

12. Negotiating settlements.

13. Advisory in relation to a merger or acquisition or takeover.

14. Advisory services to management on an ongoing basis.

What is the role of insolvency professional? He/She takes up matters relating to insolvency of individuals, partnerships and liquidation of companies. He advises and monitors his clients in matters related to insolvency, bankruptcy and liquidation.

How many insolvency professionals does India need? Though there isn’t any clear number, the IPA’s estimates that more than a lac cases relating to insolvency, bankruptcy and liquidation are pending and from now only insolvency professionals can handle these cases.

The number of Insolvency professionals enrolled till now:

Less than 100 insolvency professionals have been enrolled till now. Enrollment of insolvency professionals has been started from December 1.

Recognized Insolvency Professional Agency (IPA) The New Insolvency and Bankruptcy Code, 2016 stipulates the maximum time to be taken to liquidate a company to 180 days with an one time extension of 90 days, while earlier it used to take at least four years for the same. With the new law, arises the new opportunities for youth in the form of insolvency professionals. To cater to the huge insolvency and liquidation market and produce insolvency professionals, The Institute of Chartered Accountants of India (ICAI), The Institute of Company Secretaries of India (ICSI) & The Institute of Cost Accountant of India (ICWAI) has been given recognition as an Insolvency Professionals Agency.

Time factor Data from World Bank show that the number of years taken to resolve insolvency in major economies such as the US, the UK and China are 1.5, 1 and 1.7 years, respectively, in 2016. For India, the same is 4.3 years. According to officials, the bankruptcy code is a complete departure from the earlier Sick Industrial Companies (Special Provisions) Act, 1985, where there were delays in resolution of cases. "When decisions are taken in a time-bound manner, there is a greater chance that a corporate entity can be saved as a going concern and productive resources of the economy (labour and capital) can be put to best use," a finance ministry statement said.

What qualifications do you need to practice as insolvency professional?

An individual shall be eligible for registration, if he -

a. has passed the National Insolvency Examination.

b. has passed the Limited Insolvency Examination, and has fifteen years of experience in management, after he received a Bachelor’s degree from a university established or recognized by law.

c. has passed the Limited Insolvency Examination and has ten years of experience as -

  (i) a chartered accountant enrolled as a member of the Institute of Chartered Accountants of India.

  (ii) a company secretary enrolled as a member of the Institute of Company Secretaries of India.

  (iii) a cost accountant enrolled as a member of the Institute of Cost Accountants of India, or

  (iv) an advocate enrolled with a Bar Council.

For Sylabus for IBBI-Limited Insolvency Examination, Please click the following link:

http://iiipicai.in/index.php/examination/syllabus

For Temporary Enrolement,please click the following link:

https://www.icsi.edu/webmodules/application_forenrolment_for_limitedperiodfor_IPs.pdf

Limited Insolvency Examination

Format of Examination The format of examination is as under: a. The examination will be conducted online (computer-based in a proctored environment); with objective multiple choice questions; b. The duration of the examination will be two hours; c. A candidate will be required to answer 90 questions in two hours for a total of 100 marks; d. There will be negative marking of 25% of the marks assigned for the question; e. Passing mark for the examination is 60%; f. Passing candidates will be awarded a certificate by the Board; g. A candidate will be issued a temporary mark sheet on submission of test paper; and h. No workbook or study material will be provided.

Frequency of Examination The frequency of Examination is as under: a. The examination will be available from 100 + locations in the country; b. The examination will be available from 31st December, 2016 between 9:30 AM and 5:30 PM; c. The enrolment for examination will be open from 15th December, 2016. d. A candidate needs to enroll for examination at www.nism.ac.in. He needs to select IBBI-Limited Insolvency Examination and enroll himself for the examination by choosing the time, the day and the examination centre for his examination; e. A candidate needs to provide PAN and Aadhaar to enroll for the examination; and f. A candidate needs to pay examination fee of Rs.1000 (Rupees one thousand only) online on every enrollment.