Role of Stock Exchanges

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  • 1. CORPORATE RESTRUCTURING -Role of Stock Exchanges Pavan Kumar Vijay

2. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER 3. MERGER Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition . MERGER REVERSE MERGER As a commercial term, it means when a Healthy Company (in terms of size, capital or listed company)is merging in a Weak Company (in terms of size, or unlisted). SECTION 391-394 of Companies Act, 1956 4. DEMERGER Separation of a large Company into two or moresmaller organisation SECTION 2(19AA) of Income Tax Act, 1961. 5. Extinguishing or Reducing the liability of members to the extent it is in excess of the needs of the Company REDUCTION OF CAPITAL SECTION 100 105 of Companies Act, 1956 SECTION 100 to 105 of Companies Act, 1956 6. TYPES OF MERGER

  • Unlisted with Listed
  • Listed with Unlisted
  • Merger with Holding Company
  • Merger with Group Company
  • Healthy Company with Weak Company

7. STOCK EXCHANGES ROLE REQUIREMENTS PERSPECTIVEListing Agreement Compliances Stock Exchange Norms Observations Compliance of Other laws 8. Listing Agreement Compliances The Company agrees that it shall file any scheme/petition proposed to be filed before any Court or Tribunal underSections 391, 394 and 101of the Companies Act, 1956, with the stock exchange,for approval , at least a month before it is presented to the Court or Tribunal. Clause 24(f) 9. Clause 24(a) The Company agrees to obtainin-principle approvalfor listing from the exchanges having nationwide trading terminals where it is listed, before issuing further shares or securities . Listing Agreement Compliances.. contd 10. Clause 40A Listing Agreement Compliances..contd The Company should pursuant to merger & demerger should comply withContinuous Listingrequirements. 11. Stock Exchanges Norms Presently, Stock Exchange(s) are laying various other norms before giving approval to the Companiesfor Merger , Demerger Reduction of Capital 12. Stock Exchange Norms..contd

  • MINIMUM CAPITAL REQUIREMENTS
  • Issued & paid up Equity Capital Rs 10 crores
  • (if there is a change in management/control)
  • OR
  • Issued & paid up Equity Capital Rs 3 crores
  • (If there is no change in management/control)
  • AND
  • Minimum Net Worth 20 crores
  • (Post amalgamation)
  • *BSE Stipulations

13.

  • CONTINUOUS LISTING NORMS
  • (Transferee Co is Listed Co. & Transferor Co is Unlisted Co.)
  • Non- Promoter Holding 25% of Post -merger Capital
  • * (The entire holding of the shareholders of the transferor company be excluded)
  • If Non- Promoter Holding is less than 25% of Post merger capital, then the company has to go for offer for sale of the excess portion.
  • *BSE Stipulations

Stock Exchange Norms..contd 14. Stock Exchange Norms..contd LOCK IN REQUIRMENTS 25% of the newly issued capital pursuant to the scheme of amalgamation should be kept under lock in for 3 yrs from the date of listing The lock in period are varied by the stock exchange on case to case basis *BSE Stipulations 15. Compliance of Other Laws The Stock Exchange(s) alongside considers the compliance of other laws, regulations, rules etc applicable on the Company 16. Compliance of Other laws..contd SEBI (SAST)REGULATIONS ,1997 Regulation 3(1)(j)(ii) provides an exemption for acquisition of shares: Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to shares acquired Pursuant to a scheme : (ii) ofarrangement or reconstruction including amalgamation or mergerordemergerunder any law or regulation, Indian or foreign; 17. O

  • Valuations Analysis
  • No undue benefit to Promoters/Particulargroup
  • Investors interest not to be affected
  • Back door Entry for the benefit of listing
  • Change in Management/Control

BSERVATIONS Stock Exchanges Views 18. I SSUES 19.

  • Whether application under Clause 24(f) of the Listing Agreements is an approval or information?
  • Whether no communication from Stock Exchangewithin 1 month amounts to approval?

ISSUES 20.

  • Whether Merger without approval under Clause 24(f) of the Listing Agreement is valid considering that the High Court approved the same?
  • Whether varied lock in period stipulations imposed by Stock exchange are valid?

ISSUES 21.

  • What are the repercussions in case the promoters shareholding goes beyond 75% of the post amalgamation capital?
  • Whether a Suspended Company is eligible to obtain in principle approval from stock exchange?

ISSUES 22.

  • Whether Shares placed to QIB's in an Unlisted Company prior to merger will be counted in the post merger non -promoter shareholding of a Listed Company?

ISSUES 23. DEMERGER Global Fuel Management Ltd Reliance Capital Ventures Ltd 24.

  • Listed Company demerging into two listed companies.
  • Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity.

TYPES OF DEMERGER 25.

  • AVAILABILITY OF EXEMPTION
    • Listed Company merging with Unlisted Company.
    • In case of a demerger of a ListedCompany,the Resultant Company to get the benefit of listing.

Exemption u/c 8.3.5.1 26.

  • CONDITIONS FOR AVAILING EXEMPTION
  • Shares have beenallotted by the unlisted company (transferee-company) to the holders of securities of a listed company (transferor-company)pursuant to a scheme of reconstruction or amalgamation under the provision of the Companies Act, 1956, and such scheme has been sanctioned by the High Court/s of Judicature.
  • The listing of the shares of the unlisted transferee-company is in terms of scheme of arrangementsanctioned by the High Court/sof the Judicature.
  • At least25% of the paid-up share capital , post scheme, of the unlisted transferee-company seeking listing comprises shares allotted to the public holders of shares in the listed transferor-Company.

Exemption u/c 8.3.5.1 27. Exemption u/c 8.3.5.1

  • The unlisted company has not issued/reissued any shares, not covered under the scheme.
  • There are no outstanding warrants /instruments/ agreements which gives to any person to take the shares in the unlisted transferee company at any future date.
  • The share certificates have been dispatched to the allottees pursuant to the scheme of arrangement or their names have been entered as beneficial owner in the records of the depositories.
  • That the shares of the transferee-company issued in lieu of the locked-in-shares of the transferor-company are subjected to the lock-in for the remaining period.

28.

  • Promoters shares shall be locked-in to the extent of 20% of the post merger paid-up capital of the unlisted company, for a period of 3 years from the date of listing of the shares of the unlisted company.
  • The balance of the entire pre-merger capital of the unlisted company shall also be locked-in for a period of 3 years from the date of listing of the shares of the unlisted company.
  • The Company shall give an advertisement in one English and one Hindi newspaper with nationwide circulation and one regional newspaper with wide circulation at the place where the registered office of the company is situated, giving details as specified in Schedule XXVIII.

Exemption u/c 8.3.5.1 29. ISSUES 30.

  • Whether Demerger & Merger are possible in one scheme?

ISSUES 31.

  • One of the pre - conditionof Inter-se transfer is transferor & transferee should be holding shares for three years. What is the status of shares held in the Resultant Company?whether the three years condition will be deemed to be fulfilled in case the transferee & transferor are holding shares since last 3 years in the demerged company?

ISSUES 32. Case Studies 33. Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGM) -Demerger Scheme-FACTS

  • MGM was engaged in two separate business:
  • Real Estate Development
  • Manufacturing of various kind of fibers & fabrics
  • ii. The two businesses were quit distinct it was desired to segregate the two.

34. Salient Features of the Scheme

  • Before merger MGM transferred its complete Textiles business to MTL in lieu
  • of which MTL allotted shares to a SPV, MGM Shareholders Trust. MGM changed
  • its name as Morarji Realty Ltd. (MRL)
  • .The investment by MGM (Now MRL) in MTL was distributed among the
  • shareholders of MGM in the ratio of 10:21.
  • . The equity shares in MTL held by MGM Shareholders Trust was also
  • distributed among the shareholders in the ratio of 1:25 free of cost
  • . The Preference shares held by MGM Shareholders Trust were also offered to
  • the shareholders at a discounted price.
  • . The new shares received by the shareholders of MGM (MRL)were listed o