corporate restructuring s. h. · pdf filerestructuring through bifr -zenith ......

CORPORATE RESTRUCTURINGCORPORATE RESTRUCTURING

A PRESENTATION BY MR. S. H. BATHIYA

1S. H. Bathiya & Associates - www.shbathiya.com

What is Restructuring?What is Restructuring?

� Term “Restructuring” is not defined in Companies Act or Income tax Act.

� To alter the make up or pattern of.

� To alter the structure of something.

� There should be an existing structure before one can restructure.

� The existing structure may have many constraints-Financial, Legal, Business and Management constraints which must be kept in mind while restructuring.

2S. H. Bathiya & Associates -www.shbathiya.com

3

� Bharti-MTN deal structure failed mainly due to legal constraints as dual listing is not permitted in India and South African Government -the 21% Shareholder of MTN- did not approve the deal in the structure presented.

� The deal’s contours involved a complex structure in which both companies would pay cash and equity for stakes in each other, the end result of which would have given Bharti Airtel a 49% stake in MTN and MTN and its shareholders would have obtained a 36% economic interest in Bharti. In the next leg, both companies would have considered a full-fledged merger.

� Dual listing would require a multi currency settlement structure and would lose SEBI’s control over other country trading. It would also have required many changes in curent Indian FDI policy.

S. H. Bathiya & Associates - www.shbathiya.com

Corporate RestructuringCorporate Restructuring� Corporate Restructuring is a Process of

redesigning one or more aspects of a corporate for achieving certain objectives.

� There may be a single objective for Corporate Restructuring but most of the times there are multiple objectives of Corporate Restructuring .

� In all probability, there may be a dominant objective along with one or more other important objectives.

� Stated and unstated objectives.

� Grasim’s proposed merger of Cement Businesses achieves many other important objectives like strengthening Promoter Group’s control over cement business, improving future cash flow position, etc.


1.

TEXTILES. etc

CEMENT

GRASIM INDUSTRIES LIMITED

GRASIM - PRE RESUTRCTURING

SAMRUDDHI ULTRATRECH

100% 55%


GRASIM - POST RESUTRCTURING

TEXTILES, etc

GRASIM INDUSTRIES LIMITED

SAMRUDDHI

ULTRATECH

SAMRUDDHI -CEMENT

AROUND 65%

CEMENT


PROCESS OF CORPORATE PROCESS OF CORPORATE

RESTRUCTURINGRESTRUCTURING

1. Understand the objectives

2. Prepare viable options


3. Select the right option by 3. Select the right option by

optimisingoptimising

4. Execute the selected option.


UnderstandingUnderstanding the the Objectives of Objectives of

Corporate Restructuring. Corporate Restructuring. 1. Positioning the business to be more competitive

◦ By achieving Economies of Scale.

◦ By acquiring focus.

◦ By acquiring competition.

◦ By increasing efficiency

◦ By reducing expenses

◦ By acquiring larger market share or capacities

◦ By unlocking values

2. Surviving in an adverse economic climate.

3. Taking the business in an entirely new direction.


4. Restructuring of Debt . ◦ Corporate Debt Resrtuctuting Scheme of RBI – Wockhardt

Limited. Essar Limited. Arvind Limited.

5. Rehabilitation of Business ◦ Restructuring through BIFR-Zenith Limited, MJ Pharma,

SM Dyechem Limited, Gujrat Lyka, Pradeep Drug Company.

◦ Buying or selling of stressed assets. ARCIL-Jaghadia Copper Limited, Global Boards Limited, Phlox Pharma Limited.

6. Inviting new partners or Private Equity.

7. Settling Family Disputes or Family Arrangements –Reliance Group

8. Succession planning.

9. Division of Assets among Promoters-Asian Hotels Limited-Trifurcation.


RELIANCE DEMERGER

PROMOTERS PUBLIC

E

T

T

E

G

FRIL

PROMOTERS PUBLIC PUBLIC

F

G

ENERGY

CAPITAL

PROMOTERS/RIL


� Scheme was not explicit about division between two brothers.

� Concept of “Undertaking”.

� Inter se transfer of shares between two brothers/families ?

� Takeover Code exemption.


10. Acquiring new Business or new Markets.

11. Obtaining Listing.◦ By Reverse Merger-Jaipan Domestic, Tricom

Agrochem Limited.

◦ By Normal merger.

◦ By Demerger.

12. Getting shares Delisted.◦ Through Delisting Regulations.

◦ Through Buy back not possible.

13. Improving the Balance Sheet , Profit and Loss Account or Cash flows.

14. Consolidation of accounts.

15. Saving on taxes. Section 72 A,


Tax considerationsTax considerations� Income-tax

� Dividend Distribution tax◦ Waiver of dividend

◦ LLP

� Deemed Dividend tax

� Surcharge

� Wealth-tax

� Service tax

� Minimum Alternate Tax

� Carry forward of losses and depreciation.

� Marshal Sons Judgment-Supreme Court

� Supreme Court in the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148, -Even if the transaction is genuine and even if it is actually acted upon, but if thetransaction is entered into with the intention of tax avoidance, then the transactionwould constitute a colourable device.

� That the courts are now concerned, not merely with the genuineness of a transaction,but with the intended effect of the transaction on the fiscal purpose. That, the trueprinciple in the case of W.T. Ramsay [1981] 2 WLR 449 (HL) was that one mustconsider fiscal consequences of a pre−planned series of transactions and one has notto dissect the scheme and consider individual stages separately.


MATMAT

Investment in

Real estate

Transfer at

book values

17

100%Subsidiary

subsidiary

S. H. Bathiya & Associates -www.shbathiya.com

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16. Creation/reduction of Reserves/Goodwill◦ Capital Reserve

◦ Extract from DQ Entertainment prospectus:

◦ March 8, 2010 : “In respect of the Scheme of Amalgamation of the erstwhile DQ Entertainment Limited (“Transferor Company”) with our Company (“Transferee Company”), the accounting was not in strict compliance with AS 14. In case the accounting were in compliance with the “purchase method” specified in AS 14, amounts aggregating to Rs. 103.17 million would have been credited to Capital Reserve Account.

◦ General Reserve

◦ Revaluation Reserve

◦ Amalgamation Reserve

◦ Goodwill

17. Providing Free movement of Cash Flows.

18. Increasing Promoters’ shareholding/control.

19. Increasing market capitalisation/improving perception


20. Write off Debtors, Debit Balance in P & L 20. Write off Debtors, Debit Balance in P & L

Account, Goodwill, Obsolete StockAccount, Goodwill, Obsolete Stock

� Onward Technologies Limited

� Zenith Limited


ONWARD GROUPPRE RESTRUCTURING

ONWARD TECHNOLOGIES LIMITED(OTL)-Listed Company

SHARE PREMIUM : Rs. 36.66 Cr.

ASSETS

INVESTMENT IN OEL : Rs. 20.00 Cr.

LOANTO OEL : Rs. 10.69 Cr.

TOTAL RS. 30.69 Cr.

ONWARD ESERVICES LIMITED (OEL)

DR.BALANCE OF P/L : Rs. 15.68 Cr.

IRRECOVERABLEDEBTORS:Rs.1.90 Cr.

OBSOLETE INVENTORIES: Rs.1.81Cr.

LOSS IN VALUE OF SUNDRYADVANCES : Rs. 9.99 Cr.

TOTAL Rs. 29.39 Cr.

LIABILITIES

SHARE CAPITAL : Rs. 20.00 Cr.

LOAN FROM OTL : Rs.10.69 Cr.

TOTAL Rs. 30.69 Cr.

HOLDING COMPANY 100% SUBSIDIARY COMPANY


ONWARD GROUP POST RESTRUCTURING

ONWARD TECHNOLOGIES LIMITED(OTL)

SHARE PREMIUM : Rs. 7.26 Cr.

INVESTMENT in OEL :Rs.1.29 Cr.

LOANTO OEL : Rs. 0 Cr.

ONWARD ESERVICES LIMITED (OEL)

DR BALANCE OF P/L : Rs.0IRRECOVERABLE DEBTORS: Rs.0OBSOLETE INVENTORIES: Rs.0

LOSS IN VALUE OF SUNDRYADVANCES : Rs. 0

SHARE CAPITAL : Rs. 1.29 Cr.

LOAN FROM OTL : Rs. 0

HOLDING COMPANY 100% SUBSIDIARY COMPANY


Some issues for OnwardSome issues for Onward

� Whether section 269 SS of IT Act will apply if a loan is repaid otherwise than by way of an account payee cheque ?

� Whether the write off has to be/ should be routed through Profit and Loss Account in subsidiary’s books or in holding company’s books ?

� What is the position of true and fair ?� Whether write off of debit balance in P and

L account would jeopardize carried forward losses?


21. Write off of Deferred Revenue 21. Write off of Deferred Revenue

Expenditure against Share PremiumExpenditure against Share Premium� Section 100 of Companies Act.

� Telco Limited. A write-off of deferred revenue expenditure of Rs. 933 crores, a write-down of fixed assets of Rs. 215 crores and write-off for diminution in value of investments of Rs. 32 crores. This aggregate amount of Rs. 1,180 croreswas written off against Telco's share premium account thereby reducing its reserves (and therefore its net worth).

� Mahindra and Mahindra Limited.

� Section 80 of Companies Act. Reduction of Capital Redemption reserve.


22.Write off of Intangibles22.Write off of Intangibles

� Alembic Limited.

� Marico Limited.

� Avoiding future write-offs against future profits.

� Improving Earnings per share and profitability ratios.

� MAT benefit-Auditors’ Qualification-Apollo TyresLimited 255 ITR 273 (SC).

The Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided in the Explanation to section 115J.


23. Reduction of Share Premium or 23. Reduction of Share Premium or

Capital Reserve.Capital Reserve.

� Section 80 of Companies Act


� Creditors’ consent ?


24. Liquidation/Dissolution without 24. Liquidation/Dissolution without winding up.winding up.� Section 46 of IT Act

� Dividend to the extent of distribution of accumulated profits

� Balance amount in excess of cost of acquisition of shares to be treated as capital gains.


25. STEP UP UP

ACQUIRER COMPANY

LAND – Rs. 1CRORE

AQUIAQUIRE SHARES WORTH RS. 200 CRORESSHARES WORTH RS. 200

CRORES

SHAREHOLDERS

SHAREHOLDERS


� Liquidation of step down subsidiary.� Attachment of rights in step down

subsidiary. Shree Nirmal Commercial Limited vs. CIT (193 ITR 694) Bombay High Court –

� Hanuman Vitamin Foods Limited. The Supreme Court held that transfer of shares in a cooperative society is subject to levy of stamp duty under the Bombay Stamp Act, 1958. (AIR 2000 SC 2571)

� Reverse merger with step-down subsidiary.� Actual Cost –Section 43(1) of IT Act.� Written Down Value-Section 43(6) of IT Act.


26. Capital 26. Capital ReorganisationReorganisation

� Squeezing out.

� Subdivision of shares.

� Change in kind of share capital.

� Variation of rights.

� Change in terms of issue of shares.


27. Issue of Preference bonus 27. Issue of Preference bonus

Shares/Bonus DebenturesShares/Bonus Debentures

� Hindustan Lever Limited

� Sun Pharmaceuticals Industries Limited.

� Deemed Dividend provisions. Section 2(22) of IT Act.

� Taxation in the hands of shareholders. In case of redemption-in case of Buybackincase of sale.

� Taxation in the hands of Company


28. Stamp Duty Considerations28. Stamp Duty Considerations

Transferee Listed Company

100% subsidiary invests in Demerged

entity

Pays off the purchase consideration liability

Transferor Listed Company

Transfers Undertaking at Book values to 100% Subsidiary-

Purchase consideration remains a liability

Either through Asset Sales or through Slump

Sale or Slump sale through Court Process


� Cross holdings reduce stamp duty.

� First convert into 100% subsidiary and then merge.

� Article 25(da) of Bombay Stamp Act.10% of value of shares issued but not exceeding◦ 5% of value of immovable property situated in Maharashtra

◦ .7% of value of shares issued plus consideration paid

whichever is higher.

� Remission of stamp duty would be available in the case of transfers envisaged under notification dated January 16, 1937, i.e., cases where at least 90 per cent. of the issued capital of the transferee company is in the beneficial ownership of the transferor company, where the transfer takes place between a parent company and a subsidiary, one of which is the beneficial owner of not less than 90 per cent. of the issued share capital of the other, or between two subsidiaries in each of which not less than 90 per cent. of the share capital is in the beneficial ownership of a common parent company.(Gemini Silk Limited-Calcutta High Court –August 8, 2002)


2929. Reduction of Entities . Reduction of Entities

� Strike off of name from the Register of Companies.

� Dissolution without winding up.

� Mergers or absorptions.


30. Shifting to more 30. Shifting to more favorablefavorable

locationlocation--Tax free ZonesTax free Zones

� What happens to benefits available to an Undertaking ?

� Amalgamation or demerger of an Infrastructure Undertaking of Section 80 (IA) of IT Act.-Section 80 IA (12A).

� Whether Section 80 IA (12A) will apply to 80 IB Undertakings or 80 IC Undertakings ?


� CORPORATE RESTRUCTURING WITHOUT

EXTERNAL HELP/APPROVALS .

� CORPORATE RESTRUCTURING WITH

COURT / AUTHORITIES HELP


� TOOLS /OPTIONS OF CORPORATE

RESTRUCTURING


Compromises, Arrangements and Compromises, Arrangements and

Reconstructions Reconstructions ––Chapter V of Chapter V of

Companies Act.Companies Act.� Section 391 to 394 of

Companies Act.

� Code by itself.

� Approval of Court/NCLT

� Report of Liquidator and Reginal Director

� Required majority.

� Section 395 of Companies Act.

� Companies (Court) Rules, 1959.


� Amalgamations- very popular tool

� Defined under Income tax Act.

� Condition of Industrial Undertaking-

� Amalgamations are tax neutral in the

hands of transferor company and in the

hands of the shareholders

� carry forward and set-off of unabsorbed

losses and depreciation to the transferee

company.


Conditions prohibiting reconstruction Conditions prohibiting reconstruction or amalgamation of companyor amalgamation of company

Section 376 of Companies Act. Where any provision in the memorandum or articles of a company, or in any resolution passed in general meeting by, or by the Board of Directors of the company, or in an agreement between the company and any other person, whether made before or after the commencement of this Act, prohibits the reconstructionof the company or its amalgamation with any body corporate or bodies corporate, either absolutely or except on the condition that the managing director or manager of the company is appointed or reappointed as managing director or manager of the reconstructed company or of the body resulting from amalgamation, as the case may be, shall become void with effect from the commencement of this Act, or be void, as the case may be.


Reverse Mergers.Reverse Mergers.

� Popularly used term

◦ when a profit making company merges with a

loss making company or

◦ when an unlisted company merges with a

listed company or

◦ When a large Company merges with a smaller

company - ICICI Limited’s merger with ICICI

Bank or

◦ When stamp duties or other transaction costs

are high


Cross Border MergersCross Border Mergers--

� Involve more than one country –

� Companies Act partially recognizes it. Section 394- Transferor Company includes any “body corporate” whether a company within the meaning of this Act or not.

� Section 2(7) of Companies Act –”Body Corporate”…..includes a company incorporated outside India………………….

� Laws of both/all the countries must be adhered to.

� Dividend planning.

� Double Taxation Treaty provisions.


Demergers and Hiving OffDemergers and Hiving Off

� Meaning and Difference-

� Concept first time defined in Income tax Act Section 2(19AA) Conditions apply

� There must be more than one undertaking.

� Undertaking Defined.

� Demerged Company (Section 2(19AA)) and Resulting Company (Section 2(41A) )defined.

� Conditions are more than in an amalgamation-

� Demergers are tax neutral in the hands of the transferor company and in the hands of the shareholders-

� “Industrial Undertaking” not required for carry forward and setoff of losses. No conditions of continuing the Undertaking.

� Taxable Demergers


Demerger ofDemerger of FirmsFirms..

� No mention in literature but a working

proposition.

� Tax liability on demerger- Capital gains ?

� Splitting the firms and converting one of

them into Company and inviting private

equity or IPO.

� Demeger of LLPs.


Takeover of a CompanyTakeover of a Company

� SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

� Clause 40 A and 40 B of Listing Agreement.

� Hostile takeovers.

� Indirect takeovers.

� GDRs.

� Preference Shares.

� Competitive Bids.

� Poison Pills– Zandu

� International takeovers-HSR Provisions-Treaty Provisions-Thin Cap Rules-

� Fame Adlab

� Section 79 to be kept in mind for takeover of an unlisted company.


CorporatisationCorporatisation

� Many ways for Conversion of a

partnership firm into a Limited Company

� Under Part IX of Companies Act, 1956. No

capital gains tax liability - No stamp duty

� Succession of a firm by a Company (as a

result of which there is a Transfer of

Capital asset or intangible asset by a firm

to a company)--Under Section 47(xiii) of

Income Tax Act, 1961-Conditions apply


� Admission of a Company as a partner and

retirement of other partners from firm.

Section 45 (4) of IT Act applies-

Distribution of capital asset on

“dissolution or otherwise”.


� Succession of Proprietary Concern by a

Limited Company- Section 47(xiv) of

Income Tax Act, 1961. Conditions apply


Slump Sale of UndertakingSlump Sale of Undertaking� Section 50 B of IT Act.-Section 2 (42C) defines “Slump Sale”

means transfer of one or more undertaking as a result of sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.

� Explanation 1 to Section 2 (19AA) of IT Act defines Undertaking.

� Long term gain or short term gain.

� Section 293 (1)(a) of Companies Act

� Postal Ballot requirement

� No VAT on Slump Sale.

� Stamp Duty payable as movable even if there are immovable properties in Undertaking-Anil Purshottamdas Kakad vs. Supdt. of Stamps Bombay High court

� Assignment Deed or Agreement to assign.


Pure asset sale or pure liability Pure asset sale or pure liability

transfer.transfer.

� Section 50 of IT Act

� Sale of Assets with Mortgage loans

� Sale and Lease back.


Variation of RightsVariation of Rights..

� Section 106 of Companies Act. Alteration

of rights of holders of special classes of

shares -where share capital is divided

into different classes of

shares………….special resolution of holders

of the issued shares of that class-

� SEBI diktat for listed companies.


Conversion of a Fixed asset into Conversion of a Fixed asset into

Stock in trade and Stock in trade and vicevice--aa--versaversa

� section 45(3) of IT Act.

� Section 2(47) of IT Act-”Transfer”-If the

plans are put for approval of authorities..

� Section 281 of Income tax Act does not

apply to stock in trade.

� Section 293 of Companies Act does not

apply to stock in trade.


SubsidiarisationSubsidiarisation--

� Acquisition of 50+% shares.

� Acquisition of 100% shares.

� Issue of fresh shares.

� Buyback of shares.

� Through Court process.

� Demerger to a wholly owned subsidiary

� Slump sale to a subsidiary.

� Subsidiary by controlling the composition of Board of Directors of a Company.

� Subsidiary’s shareholding in Holding Company prior to becoming subsidiary Company-Section 42 of Companies Act.

� Transfer to/from 100% Subsidiary. Section 47 of IT Act


� Transfer to a wholly owned Subsidiary-not

regarded as a transfer under section

47(iv) subject to conditions of 8 years

relationship, etc. under section 47 A of IT

Act.

� Transfer to a partly owned subsidiary


DesubsidiarisationDesubsidiarisation--

� The process of breaking holding

subsidiary relationship.

� Desubsidiarisation through IPO/offer for

sale.

� By issue of fresh shares by subsidiary to

others.

� By sale of shares.

� Section 47A of IT Act.


Trust Structure Trust Structure

� Petroleum Trust.-Rs.3188 cr. sales price of

Reliance Shares-

� ICICI also had a trust structure.


IPO/OFFER FOR SALE/FOREIGN IPO/OFFER FOR SALE/FOREIGN LISTING LISTING


Differential Voting Differential Voting rightsrights

� Section 86 of Companies Act allows DVR in Equity Shares as per Rules

� Founder shares.

� Special rights.

� Participation in profits.

� Appointment of nominee directors

� Control.


� Sebi directive

� DCA Rules


ESOPS and Sweat EquityESOPS and Sweat Equity

� section 79A of Companies Act allows Sweat

equity. Only directors and employees are

entitled- for know how, IPR or value

additions

� Tax aspects

� Accounting aspects


Subdivision and split of shares.Subdivision and split of shares.

� Section 13 (4) of Companies Act- In the case of a company having a share capital—

� (a) unless the company is an unlimited company, the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount;


Buyback of sharesBuyback of shares

� Section 77A of Companies Act allows.

� Sterlite Industries Limited’s case.

� Maxwell Industries Limited’s case.


Liquidation of CompaniesLiquidation of Companies

� Twin Star Holding Limited.

� Actual cost as a deduction ? Section 43

(1) ?

� Section 49 (1)(iii)(c) of IT Act-on any distribution of assets on the liquidation of a company-- Cost with reference to

certain modes of acquisition- Cost to the

previous owner is cost to the assessee


Pyramids and TrianglesPyramids and Triangles


Share of profits from a partnership Share of profits from a partnership

firm/LLPfirm/LLP

� Section 10(2A) of IT Act.

� Section 115 JB of IT Act


FORMATION OF SPECIAL FORMATION OF SPECIAL BOARDSBOARDS� Family Board-Godrej

� Board of Advisors


Combination of many methods.Combination of many methods.


� NEW POSSIBILITIES with LLP STRUCTURE


CONVERSION OF A COMPANY INTO CONVERSION OF A COMPANY INTO

LLPLLP� LLP is treated as a firm for the purpose of Income

tax Act. Definition of “firm ”, “Partner” and “partnership” in section 2 (23) of IT Act amended

� LLP Act provides for such a conversion

� NO MAT is Payable by LLP- section 115JB uses words “assessee being a company…”

� NO Dividend Distribution Tax is Payable by LLP–section 115 - O uses words “ in respect of total income of a domestic company…”

� No surcharge

� No deemed dividend treatment


� Section 73 Explanation not applicable to

LLP - The Explanation applies to a

company.

� Share of Profit from a firm is exempt from

MAT under section 115JB of IT Act, as

income under Section 10.

� Stamp Duty liability on conversion ?


Conversion from unlisted public company Conversion from unlisted public company into limited liability partnershipinto limited liability partnership

Section 57 of LLP Act-

An unlisted public company may convert into a limited liability partnership in accordance with the provisions of this Chapter and the Fourth Schedule.

There should be no charge on assets.


CAPITAL GAIN TAX on conversion CAPITAL GAIN TAX on conversion

into LLP ?into LLP ?

� Finance bill 2010 has introduced Section 47 (xiiib).

� Applicable to small companies.

� Whether there is a transfer ? Texspinjudgment –Bombay High Court.

� 14A disallowance?


CONVERSION OF a FIRM IN TO A LLPCONVERSION OF a FIRM IN TO A LLP

� LLP Act provides for this

� Up gradation move

� Tax consequences ?


� DOCUMENTATION- DRAFTING AND EXECUTION.

� Scheme of Arrangement

� Court Petitions

� Court

� Applications

� Affidavits

� MOUs

� Share Purchase or Share Subscription Agreement

� Shareholder Agreement

� Non Compete

� Confidentiality Agreements

� Non solicit Agreements

� Family arrangements

� Resolutions of Board and shareholders.


LEGAL PROVISIONS AFFECTING LEGAL PROVISIONS AFFECTING

RESTRUCTURINGRESTRUCTURING

� COMPANIES ACT – SECTION 391 TO 394,

SECTION 100 and many other sections

� Unlisted Companies (Issue of Sweat Equity Shares) Rules, 2003.

� Unlisted Public Companies (Preferential Allotment) Rules, 2003,

� Companies (Court) Rules, 1959.


Provisions relating to mergers and Provisions relating to mergers and

amalgamations in Companies Bill, 2009. amalgamations in Companies Bill, 2009.

� Scope of mergers and amalgamations has been enlarged to include: 1.Compromises or arrangements with creditors and members including take-over offers and the scheme of debt restructuring together with valuation of shares and other properties; 2. Mergers and amalgamation of companies including merger by absorption or merger by formation of new company; 3. Cross-border amalgamations; 4. NCLT is the single forum for approvals


SEBI Act, Rules and RegulationsSEBI Act, Rules and Regulations

� Securities Exchange Board of India Act, 1992.

� SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997.

� SEBI (Issue of Capital and Disclosure Requirements ) Regulations, 2009.

� SEBI (Prohibition of Insider Trading) Regulations, 1992.

� SEBI (Buy- Back of Securities) Regulations, 1998.

� SEBI (Delisting of Securities) Guidelines, 2003.

� SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

� SEBI (Informal Guidance) Scheme, 2003.

� SEBI (Issue of Sweat Equity) Regulations, 2002.

� SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.


Securities Contracts (Regulation) Act Securities Contracts (Regulation) Act

and Rulesand Rules

� Securities Contracts (Regulation) Rules


Stock exchange Listing RegulationsStock exchange Listing Regulations

� Provisions of Listing Agreement

� Clause 24(f).

� Clause 24 (g).

� Clause 40A and 40B.

� Listing Guidelines.


Sick Industrial Companies (Special Sick Industrial Companies (Special

Provisions) Act. Provisions) Act.

� SICA overrides most of the legislations.

� BIFR has exhaustive powers.


Income Tax Act Income Tax Act

� Section 2(1B) Amalgamation, Section 2 (19A), 2 (19AA),2(42C)

� Section 28, 43, 45. 46, 49,

� Section 47-Transactions not regarded as transfer

� Section 50

� Section 50 B- Slump Sale

� Section 50 C

� Section 72A

� Section 79


IndianIndian Stamp Act and State Stamp Act and State Stamp Stamp

ActsActs

� state matter-Each state has different

raates of stamp duty

� Union Terrritories

� Bombay High Court in Litaka

Pharmaceuticals case-Conveyance-

demerger also covered.

� Article of Schedule to Bombay Stamp Act

� When properties of a transferor Company

are situated in 2 states


Sales Tax LawsSales Tax Laws

� State VAT Act

� Central Sales tax Act

� Automatic Registration not possible.

� Maharashtra Vat Act has a unique provision.


Sale of Goods ActSale of Goods Act

� Applies to movables

� Transfer of Property Act

� Court order is a conveyance.

� Consent decree is a conveyance


Competition Act, 2002Competition Act, 2002

� Applies to large mergers and takeovers


LabourLabour lawslaws


Rent ActRent Act

� Automatic transfer of Tenancy not possible.

� THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSESTS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002(SARFESI)


FEMA/RBI/FDI RegulationsFEMA/RBI/FDI Regulations

� Sector specific restriction

� Take over of Gujarat Ambuja Cements by a foreign entity increase foreign stake in ING Vysya an insurance Company.

� DUE DILIGENCE


Accounting Standard 14Accounting Standard 14

� Does not apply to demergers

� Pooling of interest method and Purchase

method

� Changing method as per court order

� Disclosures


IFRSIFRS--Business Combination and IAS Business Combination and IAS

22 22 --

� IFRS 3 Business Combination


VALUATIONVALUATION

� During restructuring-of shares,

businesses, intangibles- various

methods- Supreme Court

� Methods of valuation-NAV at Market

Values, Earnings multiple Valuation,

Discounted Cash flow valuation, Stock

market valuation.

� Fairness opinion


Some issuesSome issues

� Whether authorsied capital will merge or demerge in case of a merger or demerger ?

� Whether the Transferee Company should be in existence on the Appointed date of Demerger ?

� Whether the Company need to wait for Stock Exchange approval prior to filing petition with the Court ?

� Whether separate Resolution under Section 100 of Companies Act required when the Scheme is under Section 391 to 394 ?

� Whether licenses will automatically be transferred in a Scheme of amalgamation ?

� Whether employees have right to present before Court ?


corporate restructuring s. h. · pdf filerestructuring through bifr -zenith ......

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