m&a statutory framework, drafting of scheme, important aspects & activities
TRANSCRIPT
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
1/35
Statutory Framework, Draftingof Scheme, Important Aspects& Activities
M & A
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
2/35
M&A Statutory Framework in India
The Companies Act, 1956 Sections 390 to 396A and
125, 127, 147, 305, 308;
SEBI (Prohibition of Insider Trading) Regulations, 1992
Listing Agreement (LA) 16, 22(a & d), 24(a, f & g),31 (c & e) , 36(7);
The Companies (Court) Rules, 1959(Court Rules)
Rules 67 to 87
Depositories Act, 1996
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 - Regulation 3(1)(j);
Relevant State Stamp Act
The FEM (Transfer or Issue of Security by a Person
Resident outside India) Regulations, 2000Accounting Standard 14
Income-tax Act Section 2(1B), 72AIndustrial Disputes Act, 1947 Section 25FF
F
R
AM
EW
O
RK
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
3/35
M&A Important Aspects
Approval Mechanism
Board of Directors
Official Liquidator
Stock Exchanges
Shareholders & Creditors
Central Government, Regional Director and Registrar
of Companies
RBI / FIPB, if foreign shareholding beyond
permissible limits
Debenture Trustee / FIs / Lenders
High Court(s) / NCLT
Competition Commission of India (CCI)
B
AS
I
C
S
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
4/35
M&A Important Aspects
Unique Aspects of 391-394 Provisions
Foreign company can be transferor company but not
transferee company
Complete Code -
Alteration of MOA / AOA;
Issue of Further Shares 81(1A) Approval Not
required
Transfer of investments of Transferor Co
Transfer by Operation of Law 108 compliance
not necessary
The voting at Court convened meetings Through poll
only. Show of hands - NOT permissible
Discretion of Court to dispense with holing of meetings.
Right to amalgamate Inherent Right. Specific
provision in the articles NOT necessary.
B
A
S
IC
S
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
5/35
M&A Statutory Framework in India
PR
O
XY
V
O
TI
N
G
One Person holding proxies
from more than oneMember
Number of Members represented by him will be
counted as the number of members present andvoting.
Joint Members holding
shares in the same order of
names
Only one Member will be counted as present and
voting.
Joint Members holding
shares in different order of
names
Number of Members representing each folio will be
counted as number of members present and voting.
One or more of the Joint
Members common in morethan one folio
Number of Members representing each folio will be
counted as number of members present and voting.
Multiple Proxies Proxy later in date is valid
Execution of Proxy in case
of Joint Holders
Any one of the Joint-holder can execute a proxy.
In case of a proxy executed by one joint-holder andanother joint-holder being present personally, the
joint-holder present personally shall be entitled to vote.
In case of more than one proxy, the proxy executed
by the joint-holder higher in order shall be valid.
Undated proxies A proxy signed in blank and filled in subsequently,
before submission to the company is valid.
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
6/35
M&A Important Aspects
Unique Aspects of 391-394 Provisions
Special Majority -A majority in number AND
3/4th in value;
of Persons Present and Voting.
B
AS
I
C
S
Total No. of Members 2000
Total No. Members present 100
No. of members who voted on theresolution
95
Total no. of valid votes 90
Total issued and paid-up share
capital
Rs. 500 Crores (i.e. 50 crore shares of Rs.10/- each)
Total issued & paid-up share
capital held by members whose
votes are valid*
Rs. 300 Crores
Qualifying majority Minimum 46 members holding 22.5 or more shares
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
7/35
M&A Important Aspects
Some Important Process-related Matters
Both proxies & authorisations To be lodged at least48 hours before the meeting.
Directors/ Manager and Debenture Trustees to disclose
their interest in their capacity as a Director/ Manager/
Trustees or as a creditor or otherwise . [Sec 393(5)]
E-filing of forms 61 (serving copy of petition on ROC, as
required under sec 394) & 24A (serving copy of petition
on RD, as required under sec 394A) also to be followed
by physical filing with ROC and RD, respectively.
Order sanctioning the Scheme to include 30 days time
for filing of Court Order with ROC [Refer Rule 81 of
Companies (Court) Rules].
Post amalgamation, directors need to give theirdisclosures under sections 305/308 of Companies Act &
Insider Trading Regulations
B
E
A
WA
R
E
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
8/35
M&A Important Aspects
Securities Law Requirements
Disclosure under Insider Trading Regulations to begiven by Directors and Officers covered under the
Code
Disclosure to Stock Exchanges-M&A Price Sensitive Information
Advance Intimation of Board meeting convened
to consider M&A proposal NOT requiredOutcome of Board Meeting to be intimated
M&A Exempted from Takeover Regulation;Disclosures to be given at specified threshold
Filing of Scheme with Stock Exchanges Before 30days of Court filing and secure no-objection
S
E
C
L
AW
SN
A
PS
H
OT
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
9/35
M&A Important Aspects
Treatment of Loans / Debentures of Transferor Co. and
Creation of Charge by Transferee Co.
Loans & Deb of Transferor Co become that of
Transferee Co, unless otherwise provided in Scheme
No need to issue new debenture certificates;
endorsement of name (with a reference to the Court
order(s) sanctioning the Scheme) would suffice
Registration of charge under Section 127 of
Companies Act, 1956. E-form 8 to be filed even in
respect of series of debentures, as e-form 10 does not
provide requisite fields
No stamp duty payable.
Transfer of assets in amalgamation being a transfer by
virtue of an order of court & by virtue of the Companies
Act is a transfer by operation of law. [Sailendra Kumar
Ray v The Bank of Calcutta Ltd, 1940 (Cal)]
L
O
A
N
&
D
E
B
M&A I A
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
10/35
M&A Important Aspects
Stamp Law Provisions
An Order under Section 394 is based upon arrangement
between two companies by transferring the assets &
liabilities of one to another company and that Order isan instrument as defined under Section 2(1) of the
Bombay Stamp Act which includes every document by
which any right or liability is transferred. [Li Taka
Pharmaceuticals vs. State of Maharashtra, 1996 (Bom)]
High Court Order Instrument of Conveyance
Levy of Stamp Duty State subject
The order passed in the case of Gemini Silk Limited vs.
Gemini Oversees Limited was set aside. The Court held
that in the absence of specific provision in the Stamp
Duty Law of the State, the state shall have no powers to
impose stamp duty on transfer of assets & liabilities of
the Transferor Company to the Transferee Company
S
T
AM
P
DU
T
Y
A
SP
E
CT
S
M&A I t t A t
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
11/35
M&A Important Aspects
Employees Related Matters
However, on satisfaction of following conditions, it
will not tantamount to retrenchment [Sec 25FF]
Service not intrrupted by transfer
T&C Not less favourable than immediately
before transfer
New Employer would be liable to pay
compensation for retrenchment in future, if any.
Change in ownership & management by operation oflaw is deemed as transfer of workmen from the old to
new employer and treated as retrenchment [Sec 25F
and 25FF]
It is advisable that the Scheme should clearly containthe above stipulations
L
A
BO
U
R
L
A
W
M&A I t t A t O
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
12/35
M&A Important Aspects
Treatment of Overseas Shareholders / GDRs of
Transferor Co.
US Securities Act requires registration of securities
to be distributed to investors residing in USA, unless
the same is exempted 3(a)(10) exemption Auto exemption. SECs Staff
Legal Bulletin No. 3.
Exchange of securities; no cash offer
Court Hearing; notice of which duly given
Fairness to be examined by Court, subject to
specific reliance on 3(a)(10) exemption
Shareholding of persons resident outside India in the
Transferee co. should not exceed the percentage
specified in the approval granted by Central Govt / RBI/
specified in the Regulation. [FEMA Regulation]
Consult Depository and put specific provision in the
Scheme and Petition
O
V
E
R
S
E
AS
I
NV
E
ST
M
EN
T
M&A I t t A t
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
13/35
M&A Important Aspects
Treatment of Overseas Shareholders / GDRs of
Transferor Co. Activities involved in new GDR issuance
Notice to the GDR holders of the transferor
company about the amalgamation and itsimplication on the GDR programme
Termination of the GDR programme of thetransferor company
Issue of shares by the transferee company to thedepositary bank of the transferor company inlieu of the share underlying GDRs of the
transferor companyTransfer of the above shares from the transferor
depositary to the transferee depositary
Issue of GDRs by the transferee depositary to theeligible GDR holders of the transferor company
G
D
R
I
S
S
U
A
N
CE
M&A D fti A S h
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
14/35
M&A Drafting A Scheme
The Scheme should not in any way violate, override or
circumscribe the statutory provisions, in particular the
provisions of securities laws or the stock exchangerequirements. [Cl. 24(g) of LA]
Scheme - formalisation of terms of M&A
No prescribed form or contents statutorily
The Explanatory Statement should contain [Sec 393]
terms of the arrangement and its effect
material interests of directors, MD, manager and
effect of arrangement on those interests if different
from like interest on other persons
Arrangement affecting rights of debenture holders
like interest of the debenture trustees
disclosure of the pre and post amalgamation capital
structure and shareholding pattern. [Cl. 24(i) of LA]
B
AS
IC
S
M&A Drafting A Scheme
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
15/35
M&A Drafting A Scheme
BR
O
A
D
C
ON
T
O
U
R
S
Appointed Date
Definitions
Particulars of Transferor & Transferee Companies,including the authorised, issued and paid-up capital
Purpose and Rationale
Effective DateTransfer of Undertaking Terms, related details
Issuance of new shares Share Exchange Ratio,
fractional entitlements, ranking of the new equityshares, issue in physical or demat, promoters
shareholding, overseas issue etc.
Treatment of GDRs of the transferor company
M&A Drafting A Scheme
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
16/35
M&A Drafting A Scheme
Conduct of Business
Employees
Legal Proceedings
Inter se Transactions
Modifications of the Scheme
Scheme conditional upon
Filing of Applications / Securing Necessary Approvals
Costs, charges and expenses
Accounting Treatment
Dissolution of Transferor Company(ies) withoutwinding up
Scheme Complete Code
BR
O
A
D
C
ON
T
O
U
R
S
Procedure :
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
17/35
Procedure :I
M
P
A
C
T
IV
I
T
I
ES
Due Diligence Valuation
Determine swap ratio based on valuation report
Board approval of parties to amalgamation
Intimation of the Boards decision approving theScheme to SEs & Depositories
Filing of Scheme with SEs before Court filing
No-objection of SEs
Application to be made to the court(s) fordirection to hold meetings of members/creditors
or obtain dispensation from holding meeting(s)
Procedure :
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
18/35
Procedure :I
M
P
A
C
T
IV
I
T
I
ES
HC directions Notice of the meetings to members & creditors,
with the Scheme and explanatory statement
Advertisement in newspapers
Filing of Affidavit by the Chairman of the
meeting withy Court(s) proving service of noticeand publication of advertisement
Approval of members & creditors by special
majority
Notices of the meeting to be forwarded to SEs
Intimation of result of the meeting to SEs
Procedure :
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
19/35
Procedure :
Filing of Chairmans Report on results of meetings
of shareholders & creditors Filing of Petition with the high Court9s) seeking
sanction to the Scheme
Notice to Central Govt. (Regional Director), andOL (transferor company only)
High Court(s) to fix the hearing date
Newspaper advertisement notifying the date of
hearing of the Petition
High Court(s) Order sanctioning the Scheme Filing of the certified copy of HC Order(s) with the
RoC
Dissolution of the Transferor Company, without
being wound up.
I
M
P
A
C
T
IV
I
T
I
ES
Post Amalgamation Activities :I
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
20/35
Post Amalgamation Activities :I
M
P
A
C
T
IV
I
T
I
ES
Adjudication and payment of stamp duty on the
High Court Order
Fixing of Record date by the Board
Appointment of Occupier for plants / factories oftransferor company(ies)
Application to Stock Exchanges for in-principal
approval for listing of shares
Annexing copies of the HC Orders to every copy of
the MoA of the Company
Intimation of the Record Date to the Stock
Exchanges and NSDL, CDSL, ODB
Post Amalgamation Activities :I
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
21/35
Post Amalgamation Activities :I
M
P
A
C
T
IV
I
T
I
ES
Communication to the Debenture Trustees in
respect of debentures
Transfer of verious Licenses, Permissions, trade
marks, etc. Change the Name and Address of the Registered
Office at the IPCL sites, change in letter-heads etc.
Deactivation of ISINs of securities of transferor
company(ies)
Letter to MCA for appointment / transfer of cost
auditor for products of transferor company(ies)
E-filing of Form 8 under section 127 of the
Companies Act Fixing of Record date by the Board
Post Amalgamation Activities :I
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
22/35
Post Amalgamation Activities :
Listing & trading approval of SEs
Completion of despatch of share certificates
Disclosures received from Directors re. theirshareholding
Filing of Form 2 with RoC
Filing of Form FCGPR with RBI
Treatment of fractional entitlements
Delisting of GDRs of transferor company(ies)
Listing of new GDRs
I
M
P
A
C
T
IV
I
T
I
ES
M&A Statutory Framework in India
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
23/35
M&A Statutory Framework in India
10
M
I
L
E
ST
ON
E
S
Sl Compliance TentativeSchedule
1 Hold Board Meeting to approve the proposed merger, the draftScheme of merger and incidental matters.
X
2 Obtain Stock Exchanges no-objection X + 5
3 Move an Application u/s 391 (1) of the CA to the Court for an Orderconvening meetings of the shareholders/ creditors or any class ofthem by a Judges Summons supported by an Affidavit, draftMinutes of Order and a copy of the Scheme.
X + 5
4 Meetings of the Shareholders and the Creditors X + 40
5 File Report of the Chairman of each of the Meetings (within seven daysafter the conclusion of the Meeting or the time fixed by the Court)
X + 41
6 File Petition seeking Court(s) sanction to Scheme (within 7 days of thefiling of the Report by the Chairman)
X + 42
7 Serve Notice on Regional Director, ROC and Official Liquidatorintimating them of the date of hearing of Petition and enclosingtherewith copy of the Petition and Affidavit verifying Petition
X + 44
8 High Court(s) Order sanctioning the Scheme X + 70
9 Obtain certified copy of the Order on Petition from the Court - OralOrder to be followed by a Drawn-up Order.
X + 80
10 File e-form 21 along with certified copy of Court Order with RoC(s). X + 81
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
24/35
Important Case LawsM & A
Important Case Laws
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
25/35
p
.the jurisdiction of the court in sanctioning a claim of
merger is not to ascertain with mathematical accuracy if thedetermination satisfied the arithmetical test. A company
court does not exercise an appellate jurisdiction. It exercises
a jurisdiction founded on fairness. It is not required to
interfere only because the figure arrived at by the valuer
was not as good as it would have been if another method
had been adopted. .[Hindustan Levers (1995)]
... It has also to be kept in view that which exchange ratio
is better is in the realm of commercial decision of well
informed equity shareholders. It is not for the Court to sit in
appeal over this value judgement of equity shareholders who
are supposed to be men of world and reasonable persons
who know their own benefit and interest underlying any
proposed scheme. With open eyes they have okayed thisratio and the entire scheme.. [Miheer Mafatlals Case]
VA
LU
A
T
I
ON
Important Case Laws
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
26/35
p
the exchange ratio of the shares of the two companies,which were being amalgamated, had to be stated alongwith
the notice of the meeting. How this exchange ratio was
worked out, however, was not required to be stated in thestatement contemplated under section 391(a).[Hindustan
Lever; Jitendra R. Sukhadia v. Alembic Chemical Works Co.]
The methods recognized by courts are (i) net assets value,
(ii) earnings value method and (iii) market value
method. [cases ofHindustan Lever Ltd and Mafatlal
Industries Ltd.]
V
A
LU
AT
I
ON
Important Case Laws
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
27/35
p
D
E
T
E
RM
I
NE
C
LA
S
S
unless a separate and different type of scheme ofcompromise is offered to a sub-class of a class of creditors
or shareholders otherwise equally circumscribed by the
class, no separate class of sub-class of the main class ofmembers or creditors is required to be convened.[Miheer
Mafatlal Case; Spartek Ceramics India Limited
Manu/AP/0991/2005 (Del)]
Merely because the Companies Act provides for provisions
like creation of security, debenture redemption reserve etc.,
under Sections 117A 117C, debentureholders will NOT
constitute as a separate class from among the secured
creditors.[In Re: Siel Ltd, 2004 (122) Com Cases 536 (Del),
Manu/DE/0666/2003, and In Re: Spartek Ceramics Ltd.]
Important Case Laws
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
28/35
p
M
ON
O
P
O
L
Y
C
R
E
AT
I
ON
. Nothing has been shown under any Act, Rule orRegulation or any other law under which the Company
Court cannot exercise jurisdiction to sanction a Scheme in
the event of a possibility or likelihood of monopoly resultingon the Scheme being sanctioned.. Furthermore, nothing
has been brought on record to show that even if a monopoly
results, it would affect the public interest or the economic
interest of the country adversely, which may be a factor
having relevant bearing. [Reliance Petroleum Limiteds
Case 2002 (Guj)]
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
29/35
Sanction BeyondSanction IPCL Case StudyM & A
Sanction Beyond Sanction IPCL Case Study
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
30/35
IPCL Amalgamation with RIL First Stage Sanction
March 9, 2007 PWC and E&Y, valuers gave theirreport
March 10, 2007 Boards of RIL & IPCL approval
March 13/14, 2007 BSE & NSE no-objection
April 14/21, 2007 Members/ Creditors of RIL &
IPCL approval
May 14 / June 1 RD No-objection
June 12, 2007 Bombay HC sanction
June 18, 2007 OL no-objection
A
P
P
RO
V
AL
S
Sanction Beyond Sanction IPCL Case Study
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
31/35
Workers Associations
From Shareholders Ancillary Units
SC/ST Union
O B J E C T I O N S
Sanction Beyond Sanction IPCL Case Study
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
32/35
Receipt of Objections
From Employee Shareholders
Share Exchange Ration Not proper
From Workers Association
From Ancillary Units
From SC / ST Unions
Creation of Monopoly Status
Debentureholders Class Separate From Creditors
Diversion of assets
Contrary to Public Policy
Workers participation in negotiation process Future of IPCL workers
LOI Concluded Contracts
Continued supply of bags irrespective of price &
quality
Reservation for SC / ST employees
OB
J
E
C
TI
O
N
S
Sanction Beyond Sanction IPCL Case Study
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
33/35
Filing of Affidavit-in-reply
Receipt of Rejoinder
Filing of Sur-Rejoinder
Hearing by the Court
Adjournments
Filing of Written Submissions
Final Hearing Court Order
Court Order
Appeal Before the Division BenchHearing
Filing of Written Submissions
Division Bench Order
P
R
O
C
ES
S
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
34/35
SATYEMAVE J AYATEGujarat HC Benc h Dec is ion
Com pl ianc e w i t h a l l fo rmal i t ies No proc edura l lapse Proper Share Ex c hange Rat io Work ers , Anc i l la ry Uni t s & SC / STEm ployees dem ands UnreasonableVALIDITY OF SCHEME - REINFORCED
-
8/14/2019 M&a Statutory Framework, Drafting of Scheme, Important Aspects & Activities
35/35
THANK YOU !