CORPORATE CORPORATE RESTRUCTURINGRESTRUCTURING

Presentation by : Mr. Virender Ganda, Vishvas Associates

New Delhi

CORPORATE RESTRUCTURINGCORPORATE RESTRUCTURING MERGER/ AMALGAMATIONMERGER/ AMALGAMATION

DEMERGERDEMERGER

SLUMP SALESLUMP SALE

TAKE-OVERTAKE-OVER

FINANCIAL RESTRUCTURINGFINANCIAL RESTRUCTURING

REDUCTION OF CAPITALREDUCTION OF CAPITAL

BUY BACK OF SHARES ETC.BUY BACK OF SHARES ETC.

SEBISEBI TAKE OVER CODETAKE OVER CODE

SEBI (Substantial Acquisition of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, Shares and Takeovers) Regulations, 19971997

Comprehensive Regulations Comprehensive Regulations governing acquisition of shares and governing acquisition of shares and take over of a listed Company.take over of a listed Company.

(Enforced w.e.f 20.02.1997)(Enforced w.e.f 20.02.1997)

SEBISEBI TAKE OVER CODETAKE OVER CODE

Exemptions (Regulation 3)Exemptions (Regulation 3)

Allotment in Public IssueAllotment in Public IssueAllotment in Rights IssueAllotment in Rights IssueAllotment to UnderwritersAllotment to UnderwritersInter-se Transfer of shares amongst: Inter-se Transfer of shares amongst: - Group as defined in MRTP Act, - Group as defined in MRTP Act, 19691969 - Relatives- Relatives

SEBISEBI TAKE OVER CODETAKE OVER CODE

- Qualifying- Qualifying Indian Promoters and Indian Promoters and Foreign Foreign

CollaboratorsCollaborators

- Qualifying- Qualifying Promoters Promoters

- the acquirer and persons acting in - the acquirer and persons acting in

concert concert

Acquisition of shares in the ordinary Acquisition of shares in the ordinary course of business by stock-broker, course of business by stock-broker, registered market maker, Public registered market maker, Public Financial Institutions, Banks etc.Financial Institutions, Banks etc.

Acquisition of shares by way of Acquisition of shares by way of transmission;transmission;

pursuant to schemepursuant to scheme - under Sec. 18 of SICA- under Sec. 18 of SICA - Merger/ amalgamation- Merger/ amalgamation Acquisition of shares of unlistedAcquisition of shares of unlisted companiescompanies

Threshold LimitsThreshold Limits

Regulation 10Regulation 10- - Acquisition of 15% or Acquisition of 15% or more of the shares or voting rights of more of the shares or voting rights of any Companyany Company

No acquisition of shares or voting No acquisition of shares or voting rightsrights

taken together with shares/voting taken together with shares/voting rights already held by him or by PACsrights already held by him or by PACs

entitling to exercise 15% or more ofentitling to exercise 15% or more of voting rights in a Companyvoting rights in a Company Unless a Public Announcement toUnless a Public Announcement to acquire shares is madeacquire shares is made

Consolidation of HoldingsConsolidation of HoldingsRegulation 11Regulation 11(1)(1) No acquirer who together with PACs No acquirer who together with PACs has acquired 15% or more but less thanhas acquired 15% or more but less than 55% of shares or voting rights55% of shares or voting rights shall acquire either himself or with PACsshall acquire either himself or with PACs additional shares or voting rightsadditional shares or voting rights Entitling him to exercise more than 5%Entitling him to exercise more than 5%

of voting rights in any f.y. ending of voting rights in any f.y. ending March 31March 31 Unless he makes a Public Unless he makes a Public

Announcement to acquire sharesAnnouncement to acquire shares

(2)(2) No acquirer together with PACsNo acquirer together with PACs Holding 55% or more but less than Holding 55% or more but less than

75% shares or voting rights in the 75% shares or voting rights in the CompanyCompany

shall acquire either by himself or shall acquire either by himself or with PACswith PACs

Any additional shares or voting rightsAny additional shares or voting rights unless he makes Public unless he makes Public

Announcement to acquire sharesAnnouncement to acquire shares

Disclosure RequirementsDisclosure RequirementsEvent Based Disclosures- Regulation Event Based Disclosures- Regulation

77

By the Acquirer under Regulation By the Acquirer under Regulation 7(1)7(1)

Every Acquirer on acquiring Every Acquirer on acquiring (including existing holding) more (including existing holding) more than 5% or 10% or 14% or 54% or than 5% or 10% or 14% or 54% or 74% Shares or Voting Rights 74% Shares or Voting Rights

Disclose his aggregate Disclose his aggregate shareholding at every stage shareholding at every stage

to the Companyto the Company Within 2 days of acquisition of Within 2 days of acquisition of

shares and voting rights.shares and voting rights.

Under Regulation 7(1A)Under Regulation 7(1A) Any acquirer who has acquired shares or Any acquirer who has acquired shares or

voting rights under creeping acquisitionvoting rights under creeping acquisition Disclose purchase or sale aggregating 2% Disclose purchase or sale aggregating 2%

or more or more To the Company and the stock exchangesTo the Company and the stock exchanges Within 2 days of such purchase or saleWithin 2 days of such purchase or sale

By the CompanyBy the Company

Every Company whose shares are Every Company whose shares are acquired u/r 7(1) & (1A)acquired u/r 7(1) & (1A)

Disclose the aggregate number of shares Disclose the aggregate number of shares held by each of such personsheld by each of such persons

To all the stock exchangesTo all the stock exchanges within 7 days of receipt of intimation from within 7 days of receipt of intimation from

the acquirerthe acquirer

Continual Disclosures -Continual Disclosures -Regulation 8Regulation 8

By the persons holding more than By the persons holding more than 15% shares or voting rights15% shares or voting rights

Every person holding more than Every person holding more than 15% shares or voting rights in the 15% shares or voting rights in the CompanyCompany

Make yearly disclosure of his Make yearly disclosure of his holdingsholdings

to the Companyto the Company within 21 days from the f.y. within 21 days from the f.y.

ending March 31ending March 31

By the PromotersBy the Promoters Promoter or person having control Promoter or person having control

over the Companyover the Company disclose no. & % of shares held by disclose no. & % of shares held by

him and by PACshim and by PACs to the Companyto the Company within 21 days from the f.y. ending within 21 days from the f.y. ending

March 31 as well as record date of March 31 as well as record date of the Companythe Company

By the PromotersBy the Promoters Promoter or person having control Promoter or person having control

over the Companyover the Company disclose no. & % of shares held by disclose no. & % of shares held by

him and by PACshim and by PACs to the Companyto the Company within 21 days from the f.y. within 21 days from the f.y.

ending March 31 as well as record ending March 31 as well as record date of the Companydate of the Company

By the CompanyBy the Company Every CompanyEvery Company make yearly disclosure in respect of make yearly disclosure in respect of

persons holding more than 15% shares persons holding more than 15% shares as well as of holdings of promoters and as well as of holdings of promoters and PACs.PACs.

to the stock exchangesto the stock exchanges within 30 days from the f.y. ending within 30 days from the f.y. ending

March 31 and record dateMarch 31 and record date Register in specified format shall be Register in specified format shall be

maintained to record the information maintained to record the information received under this regulation.received under this regulation.

MERGER/ AMALGAMATIONMERGER/ AMALGAMATIONSection 2(1B) of Income Tax Act,Section 2(1B) of Income Tax Act,

Merger of two or more companiesMerger of two or more companies

all assets and liabilities of the amalgamatingall assets and liabilities of the amalgamating companycompany

become become the assetsthe assets and liabilities of the amalgamated and liabilities of the amalgamated

company company

Shareholders holdingShareholders holding not less than 3/4th in value of the sharesnot less than 3/4th in value of the shares in the amalgamating companyin the amalgamating company

become become shareholders of the amalgamated companyshareholders of the amalgamated company

A Ltd. B Ltd.A Ltd. B Ltd.

merged withmerged with

C Ltd.C Ltd.

- A Ltd & B Ltd. to get wound upA Ltd & B Ltd. to get wound up- Shareholders of A Ltd. & B Ltd. toShareholders of A Ltd. & B Ltd. to become shareholders of C Ltd.become shareholders of C Ltd.

DE-MERGERDE-MERGER

Section 2(19AA) of the Income-tax Section 2(19AA) of the Income-tax Act Act

‘‘Demerger’ Demerger’ transfer, pursuant to a scheme transfer, pursuant to a scheme

of arrangement under Section of arrangement under Section 391 to 394 of the Companies 391 to 394 of the Companies Act, 1956Act, 1956

by a demerged company by a demerged company of its one or more undertakings of its one or more undertakings to the resulting company in to the resulting company in

such a manner that-such a manner that-

Demerger Contd.Demerger Contd.

(i)(i)all the propertyall the property and liabilitiesand liabilities of of the undertaking becomes the the undertaking becomes the property of the resulting property of the resulting company; company;

(ii)(ii)the property and the liabilities the property and the liabilities are transferred at are transferred at bookbook values values

(iii)(iii)the resulting company issues the resulting company issues its shares to the shareholders of its shares to the shareholders of the demerged company on a the demerged company on a proportionate basis;proportionate basis;

Demerger Contd.Demerger Contd.

(iv) the shareholders holding not less than (iv) the shareholders holding not less than 3/43/4thth in value of shares in the demerged in value of shares in the demerged company (other than shares already held company (other than shares already held therein immediately before the therein immediately before the demerger, or by a nominee for, the demerger, or by a nominee for, the resulting company or, its subsidiary) resulting company or, its subsidiary) become shareholders of the resulting become shareholders of the resulting company or companies;company or companies;

(v) the transfer of the undertaking as an on (v) the transfer of the undertaking as an on going concern.going concern.

UNDERTAKINGUNDERTAKING

Explanation 1 to Section 2(19AA) of Explanation 1 to Section 2(19AA) of Income Tax ActIncome Tax Act

Undertaking shall include any part of Undertaking shall include any part of an undertaking, or a unit or division an undertaking, or a unit or division of an undertaking or a business of an undertaking or a business activity taken as a whole, but does activity taken as a whole, but does not include individual assets or not include individual assets or liabilities or any combination thereof liabilities or any combination thereof not consulting a business activity.not consulting a business activity.

A Ltd.A Ltd.

Undertaking I Undertaking IIIUndertaking I Undertaking III

demergeddemerged toto Undertaking II Undertaking II

B Ltd.B Ltd.

- Shareholders of A Ltd. to be issued shares byShareholders of A Ltd. to be issued shares by B Ltd. on proportionate basis.B Ltd. on proportionate basis.- Share capital of A Ltd. to be reduced - Share capital of A Ltd. to be reduced proportionatelyproportionately

SLUMP SALESLUMP SALE

Section 2(42C) of the Income-tax Section 2(42C) of the Income-tax Act Act

Slump Sale means-Slump Sale means-

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

SUBSTANTIVE ISSUESSUBSTANTIVE ISSUES♦ ValuationValuation

- Undertaking- Undertaking - Exchange Ratio- Exchange Ratio

♦ Promoters’ EquityPromoters’ Equity00

♦ Reduction/ Cancellation of CapitalReduction/ Cancellation of Capital

♦ Authorised Share CapitalAuthorised Share Capital

♦ Stamp Duty on Stamp Duty on

- Fixed Assets- Fixed Assets - Scheme- Scheme

♦ Sales TaxSales Tax

♦ Capital GainsCapital Gains

♦ Merger of Foreign Company with an Merger of Foreign Company with an Indian CompanyIndian Company

STAMP DUTY ON MERGERSTAMP DUTY ON MERGERState of MaharashtraState of Maharashtra

Rate of Stamp DutyRate of Stamp Duty

10% of aggregate of market value of shares 10% of aggregate of market value of shares issued in exchange & amount of consideration issued in exchange & amount of consideration paid for amalgamationpaid for amalgamation

Maximum limitMaximum limit

7% of market value of immovable property 7% of market value of immovable property located in Maharashtra located in Maharashtra ““or” or” 0.7% of aggregate of mkt. value of shares issued 0.7% of aggregate of mkt. value of shares issued & amt. paid for merger, & amt. paid for merger, whichever is higherwhichever is higher

State of GujaratState of Gujarat

If Aggregate amount (Mkt. value or face value If Aggregate amount (Mkt. value or face value of shares, (whichever is higher) + amt. of of shares, (whichever is higher) + amt. of consideration for merger:consideration for merger:

(i)(i) > Rs. 100 crores- > Rs. 100 crores- 2% of aggregate 2% of aggregate amountamount(ii(ii) <100 crores> Rs. 500 crores - ) <100 crores> Rs. 500 crores - Rs. 2 Rs. 2 crores + 1% of amt. which exceeds Rs. crores + 1% of amt. which exceeds Rs. 100 crores100 crores(iii) > (iii) > Rs. 500 crores - Rs. 500 crores - Rs. 6 crores + 0.5% Rs. 6 crores + 0.5% of amt. which exceeds Rs. 500 croresof amt. which exceeds Rs. 500 crores

State of Karnataka State of Karnataka

10 rupees for every Rs. 1000 or part 10 rupees for every Rs. 1000 or part thereof, thereof,

on market value of the property of the on market value of the property of the transferor Company located in transferor Company located in KarnatakaKarnataka

State of RajasthanState of Rajasthan

10% of the market value of the property10% of the market value of the property

CASE STUDYCASE STUDYCase ICase I

Listed Companies:-Listed Companies:-

A LtdA LtdB LtdB Ltd

Shareholding in Both Companies:Shareholding in Both Companies:Promoters’ – 15.65%Promoters’ – 15.65%Public - 84.35%Public - 84.35%

Object: To enhance the Promoters’ EquityObject: To enhance the Promoters’ Equity in each Companyin each Company

Options Available:Options Available:

- Acquire from the market under Take Acquire from the market under Take Over RegulationsOver Regulations- Creeping Acquisition without triggering Creeping Acquisition without triggering take over codetake over code- Buy-Back of shares under Section 77ABuy-Back of shares under Section 77A of the Companies Act.of the Companies Act.- Restructuring through Scheme of- Restructuring through Scheme of ArrangementArrangement

Incorporation of two new CompaniesIncorporation of two new Companies X Ltd. X Ltd. Y Ltd.Y Ltd.

50% 50% 50% 50%50% 50% 50% 50% B Ltd. Y Ltd. A Ltd. X Ltd.B Ltd. Y Ltd. A Ltd. X Ltd.

X Ltd. merged with X Ltd. merged with A Ltd.A Ltd.(post merger shareholding)(post merger shareholding)

10.39% 22% 22% 45.61%10.39% 22% 22% 45.61% Promoters A Ltd. X Ltd.Promoters A Ltd. X Ltd. Y Ltd. Y Ltd. Promoters- 54.39%Promoters- 54.39%

Similarly, Y Ltd. merged with Similarly, Y Ltd. merged with B Ltd.B Ltd.

(post merger shareholding) (post merger shareholding)

10.39% 22% 22% 45%10.39% 22% 22% 45% PPromoters B Ltd X Ltd.romoters B Ltd X Ltd. Y Ltd. Y Ltd.

Promoters- 54.39%Promoters- 54.39%

Case IICase II

A Ltd. B LtdA Ltd. B Ltd

40% 60% 70%40% 60% 70% 30% 30% Promoters Public A Ltd. OthersPromoters Public A Ltd. Others (Holding Co.)(Holding Co.)

Incorporation of 2 new CompaniesIncorporation of 2 new Companies X Ltd. X Ltd. Y Ltd.Y Ltd.

A Ltd. Y Ltd. A Ltd. X Ltd.A Ltd. Y Ltd. A Ltd. X Ltd.50% 50%50% 50% 50% 50% 50% 50%

A Ltd’s share in B Ltd. (transferred)A Ltd’s share in B Ltd. (transferred)

X Ltd. Y Ltd.X Ltd. Y Ltd. 35% 35%35% 35%

B Ltd. merged with A Ltd.B Ltd. merged with A Ltd. As a result of merger:As a result of merger:

- - X Ltd. and Y Ltd. being shareholder of B Ltd.X Ltd. and Y Ltd. being shareholder of B Ltd. become shareholder of A Ltd. become shareholder of A Ltd.

Shareholding of A Ltd.Shareholding of A Ltd.

Promoters X Ltd Y LtdPromoters X Ltd Y Ltd Public Public Promoters 65% 35% Promoters 65% 35%

Thank YouThank You