jayant thakur
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JAYANT THAKUR
CHARTERED ACCOUNTANT
WIRC 2ND SEPTEMBER 2009
MERGERS, TAKEOVERS AND ACQUISITIONS – A CORPORATE
LAWS REFRESHER
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Brief Introduction
Jayant Thakur, WIRC, 2nd Sept, 2009
Mergers, acquisitions and restructuring Scope
Mainly acquisition/sale transactions
Important issues
Current developments
Occasional transactions Involvement of Chartered Accountants even less
No reason why
Complicated
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Outline of presentation
Jayant Thakur, WIRC, 2nd Sept, 2009
Nature of transactions – important distinctions andimplications
10 important considerations
Companies Bill 2009 – Important changes
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Important forms of restructuring
Jayant Thakur, WIRC, 2nd Sept, 2009
Mergers New Company
Absorption
DemergersTakeovers
Sale/divestitures/Acquisitions
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Important considerations
Jayant Thakur, WIRC, 2nd Sept, 2009
Company law
Documentations MOU, Agreements, Schemes, notices, resolutions, filings
ValuationTax Respective companies
shareholders
SEBI laws
Stamp duty
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Important considerations
Jayant Thakur, WIRC, 2nd Sept, 2009
Accounting
Financial Structuring
Indirect taxes
General contract law
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Important 10 considerations
Jayant Thakur, WIRC, 2nd Sept, 2009
Regular role of Chartered Accountants inrestructuring
Actual transactions quite complex
However, like 80/20 principle, 10 considerationsdominate every transaction
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Chartered Accountant’s role
Jayant Thakur, WIRC, 2nd Sept, 2009
Expertise of Chartered Accountant and suitability forrestructuring
Preferences given to lawyers/merchant bankers
Areas/laws importantSpecial updation/study needed
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Why and when Takeovers?
Jayant Thakur, WIRC, 2nd Sept, 2009
Simplest in Company law, etc.
Fastest
Most laws inapplicable
Even documentation may not be requiredLeast stamp duty
Lower or no tax
Separation of undertakingsLeast approvals
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Why and when sale/acquisition?
Jayant Thakur, WIRC, 2nd Sept, 2009
Simpler than mergers/demergersFast but eventual completion over periodNo court process
Some documentationCombination of undertakingsTransfer of liabilitiesStamp duty
Less tax efficient Capital gains Transfer of losses
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Why and when merger/demerger?
Jayant Thakur, WIRC, 2nd Sept, 2009
Most complex Numerous approvals and clearances
Takes most time also
Fixing of dateMost tax effective Realisation of profits
Capital gains/carried forward losses
Single window approvalsSimultaneous financial restructuring
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Advance preparations
Jayant Thakur, WIRC, 2nd Sept, 2009
Form of restructuring
Valuation
External/internal approvals
Important shareholder groups SEBI/stock exchanges
Insider Trading
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Clearing of accounting/financial mess
Jayant Thakur, WIRC, 2nd Sept, 2009
Bloated capital
Reserves
Losses
Valuation of assetsClasses of capital
Dissenting shareholders
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Preliminary documents
Jayant Thakur, WIRC, 2nd Sept, 2009
Usually advisable
Long process before, during and after restructuring
Important areas
Valuation Hidden liabilities
Due diligence
Costs and damages
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Obtain preliminary approvals
Jayant Thakur, WIRC, 2nd Sept, 2009
Lenders/creditors
Major shareholders
External authorities
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Avoid single/dominant purpose avoidance of laws
Jayant Thakur, WIRC, 2nd Sept, 2009
Tax
Stamp duty
SEBI laws
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Permitted benefits
Jayant Thakur, WIRC, 2nd Sept, 2009
Some case law driven concessions Authorised capital Whether separate procedure required
Whether authorised capital can be combined
Whether ROC fees can be netted
Elpro International Ltd. 2008 (086) SCL 0047 –BOM
El Forge Ltd. (2005) 64 SCL 529 (Mad.)
Dissenting decision in Areva T&D India Ltd. 5th July 2007
Reduction of capital – separate procedure?
Accounting/reserves
Buying out shareholders.
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Provide for unexpected hurdles/delays
Jayant Thakur, WIRC, 2nd Sept, 2009
Hurdles/Costs/delays
Creditors
Shareholder suits
Authorities
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Valuation – Supreme Court in Sultania
G. L. Sultania v. SEBI (2007) 76 SCL 473 (SC)
Context of open offer
Original purchase value Rs. 267, purchase Rs. 40,
revised to Rs. 67 Alternate valuations Rs. 408/590.
Reliance on Dr. Renuka Datla v. Solvay Pharmaceuticals B. V. (2004) 1 SCC 149 – court willintervene only if patent mistake going to root.
Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997)1 SCC 519 valuation best left to experts.
Jayant Thakur, WIRC, 2nd Sept, 2009
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Valuation – Supreme Court in Sultania
“These decisions clearly lay down the principle that valuation of shares is not only a question of fact, butalso raised technical and complex issues which may be appropriately left to the wisdom of the experts,having regard to the many imponderables whichenter the process of valuation of shares. If the valueradopts the method of valuation prescribed, or in the
absence of any prescribed method, adopts any recognised method of valuation, his valuation cannotbe assailed….
Jayant Thakur, WIRC, 2nd Sept, 2009
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Valuation – Supreme Court in Sultania
…unless it is shown that the valuation was made ona fundamentally erroneous basis, or that a patentmistake had been committed, or the valuer adopted ademonstrably wrong approach or a fundamentalerror going to the root of the matter. Where a methodof valuation is prescribed the valuation must be madeby adopting scrupulously the method prescribed,
taking into account all relevant factors which may beenumerated as relevant for arriving at the valuation”.
Jayant Thakur, WIRC, 2nd Sept, 2009
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Valuation – Supreme Court in Sultania
The Court also held that it could not go into theintricacies of valuation since these were “really matters within the realm of the experts to determineand the Court may not be justified in delving intothese matters, which must be left to the wisdom,expertise and experience of a qualified valuer”.
Jayant Thakur, WIRC, 2nd Sept, 2009
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Amendments of 2002
Tribunal
Role of Chartered Accountants
Missing link removedReduction of capital Present controversy
Express clarification
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Buyback of shares Present controversy and history
Court decisions
SEBI/stock exchanges
Express clarification
Abatement of BIFR Schemes Overriding powers?
Controversy today of conflict of powers of BIFR and CourtTransfer of employees
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Merger of listed with unlisted companies Delisting
Purchase of shares of dissenting shareholders
Conflict/overlap with SEBI laws
Authorised share capital
Absorption/division/formation of new company
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Small companies mergers What is small company?
Holding/wos
Only mergers/demergers Avoidance of Tribunal approval
ROC/OL’s objections
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Registered Valuers
Mandatory for valuations under Act
Registration
Chartered Accountants Their partners
CS/Cost Accountant
Company/body corporateLimit on fees
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
3 yearly review
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Companies Bill 2009 – important changes
Jayant Thakur, WIRC, 2nd Sept, 2009
Cross border mergers Foreign Company/Indian Company
Indian Company/Foreign Company
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New Scheme for sick companies
Tribunal to oversee
New criteria for sick companies Networth based criteria dropped
Broad procedure
Concept of Interim Administrator
Concept of Company Administrator May be Chartered Accountant
No overriding powers over other laws
Jayant Thakur, WIRC, 2nd Sept, 2009
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New Scheme for sick companies
No powers to stay proceedings/litigation However, stay over winding up, recovery of money,
enforcement of security, etc. may be granted.
Approval of Scheme by 1/4th unsecured and 3/4th secured creditors
Jayant Thakur, WIRC, 2nd Sept, 2009
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Jayant Thakur WIRC 2nd Sept 2009
THANK YOU!QUESTIONS/COMMENTS ?
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