1. CORPORATE RESTRUCTURING Regulatory framework for Listed Companies & Strategies
CS CHANDRA AGARWAL
PGDM(FIN), CS

2. GOVERNING PROVISION SECTION 391-394 of Companies Act, 1956
Most liberal sections in the entire
Companies Act, 1956.
By way of SCHEME you can
propose & achieve whatever you want

3. TYPES OF RESTRUCTURING
MERGER
DEMERGER
REDUCTION OF CAPITAL

4. Approving Authorities
RESTRUCTURING
Approving Authorities
High Court
BIFR

5. SECTION 391-394 of Companies Act, 1956
MERGER
MERGER
“Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition”.
REVERSE MERGER
“As a commercial term, it means when a Healthy Company (in terms of size, capital or listing status)is merging in a Weak Company (in terms of size, or unlisted)”.
SECTION of Companies Act, 1956

6. SECTION – 2(19AA) of Income Tax Act, 1961.
DEMERGER
“Division of a Company with two or more identifiable business units into two or more separate companies ”
SECTION – 2(19AA) of Income Tax Act, 1961.

7. REDUCTION OF CAPITAL
“Extinguishing or Reducing the paid-up capital, Securities Premium Account or liability of members with respect to their unpaid calls”
-AN EFFECTIVE WAY OF INTERNAL RESTRUCTURING
SECTION – 100 – 105 of Companies Act, 1956
SECTION 100 to 105 of Companies Act, 1956

8. A FEW VARIETY OF MERGER Unlisted with Listed Listed with Unlisted
Merger of Subsidiary with Holding Company
Merger with Group Company
Healthy Company with Weak Company
Merger through BIFR

9. STOCK EXCHANGE’S ROLE REQUIREMENTS Listing Agreement Compliances
Stock Exchange Internal Norms
Compliance of Securities laws
Compliance of Companies Act
PERSPECTIVE
Observations

10. Listing Agreement Compliances
Clause 24(f)
“The Company agrees that it shall file any scheme/petition proposed to be filed before any Court or Tribunal under Sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange, for approval, at least a month before it is presented to the Court or Tribunal.”

11. Clause 24(a) Listing Agreement Compliances.. contd
“Company to obtain ‘in-principle’ approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing shares or other securities to the shareholders of Transferor Company.”

12. Listing Agreement Compliances..contd
Clause 40A
“Company to comply with Continuous Listing requirements while framing a scheme of merger/demerger.”

13. Stock Exchange’s Norms
Presently, Stock Exchange(s) are laying various other norms before giving approval to the Companies
for
‘Merger’, ‘Demerger’ ‘Reduction of Capital’

14. MINIMUM CAPITAL REQUIREMENTS
Stock Exchange Norms..contd
MINIMUM CAPITAL REQUIREMENTS
1. 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
2. Minimum Net Worth – 20 crores
(Post amalgamation)
*BSE Stipulations

15. CONTINUOUS LISTING NORMS
Stock Exchange Norms..contd
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 – Falls below 25% of Post merger capital, then the Promoters have to dilute excess portion.
*BSE Stipulations

16. LOCK IN REQUIRMENTS Stock Exchange Norms..contd
“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

17. Compliance of Other Laws
“The Stock Exchange(s) alongside considers the compliance of Securities laws, regulations, rules etc. applicable on the Company and Companies Act also”

18. SEBI (SAST)REGULATIONS ,1997
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) of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign;”

19. O BSE RVATIONS Valuations Analysis No undue benefit to Promoters /
Particular group
Investors interest not to be affected
Back door Entry for listing
Change in Management/Control
BSE
RVATIONS

20. I
SSUES

21. ISSUES
Whether application under Clause 24(f) of the Listing Agreements is an approval or information?
Whether no communication from Stock Exchange within 1 month amounts to approval?
and
The ICSI has adopted a Vision for Corporate Governance itself

22. ISSUES
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?

23. ISSUES
What are the repercussions in case the promoter’s shareholding goes beyond 75% of the post amalgamation capital?
Whether a Suspended Company is eligible to obtain in principle approval from stock exchange?
Ladies and Gentlemen
Corporate Governance rests with the Vision and Perception of the Corporate Leadership

24. ISSUES
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?

25. MERGER THROUGH BIFR
AN EFFECTIVE
WAY TO
REVIVE
YOUR
SICK COMPANY

26. EXEMPTION FROM TAKEOVER CODE
MERGER THROUGH BIFR
EXEMPTION FROM TAKEOVER CODE
Regulation 3(1)(j) of SAST Regulations, 1997 provides that:
Nothing contained in Regulation 10, 11 & 12 shall applies to acquisition:
j) Pursuant to a scheme :
(i) framed under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
ja) Exemption to restructuring under Securitization law
(Change in mgt by the secured creditors)

27. EXEMPTION FROM CL40A OF LISTING AGREEMENT
MERGER THROUGH BIFR
EXEMPTION FROM CL40A OF LISTING AGREEMENT
Clause 40A as amended on 13th April, 2006 gives exemption to BIFR referred companies:
The Non-Promoters’ shareholding can be below 25% of the total capital of the company pursuant to BIFR Order in any rehabilitation scheme.

28. DEMERGER
Reliance Capital Ventures Ltd
Reliance Natural Resources Ltd

29. TYPES OF DEMERGER
Listed Company demerging into two companies (both could be listed).
Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity.
Distribution of shareholding in a Wholly owned Subsidiary among shareholders

30. (Rule 19 (2) (b) of SCR Rules)
CONDITION FOR LISTING
(Rule 19 (2) (b) of SCR Rules)
At least 10 per cent of securities issued by a company was offered to the public through advertisement & following conditions were fulfilled:
(a) minimum 20 lakh securities was offered to the public;
(b) the size of the offer to the public ≤ Rs. 100 crores ; and
(c) the issue was made only through book building with allocation of 60 % of the issue size to QIBs Or
2. It shall offer at least 25 % of each class to the public through Advertisement & Shares applied in pursuance of such offer were allotted

31. LISTING UNDER CL. 8.3.5.1 OF SEBI (DIP) GUIDELINES
EXEMPTION FROM CONDITION OF RULE 19 (2) (b)
Listed Company merging with Unlisted Company.
Demerger of a Listed Company, the Resultant Company to get the benefit of listing.

32. CONDITIONS FOR AVAILING EXEMPTION
Listing under Cl of DIP Guidelines
Cont….
CONDITIONS FOR AVAILING EXEMPTION
Shares have been allotted 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.
At least 25% 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.

33. Listing under Cl. 8.3.5.1 of DIP Guidelines Cont….
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.
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.
The ICSI Parivar follows principles based on ethics and humanity
Fairness to all stakeholders
Mutual Trust, Transparency and Togetherness
Unrestricted Communication and Continuous Feedback
Sharing Knowledge, Success Stories and Experience
Sharing Happiness and Concerns
Helping Each Other – Round the Clock

34. Listing under Cl. 8.3.5.1 of DIP Guidelines Cont….
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.

35. ISSUES

36. ISSUES……
Whether Demerger & Merger are possible in one scheme?
One of the pre - condition of 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?

37. Case Studies

38. FACTS Reliance Industries Limited - A Unique Scheme of Arrangement-
PRE –ARRANGEMENT SCENARIO
Reliance Industries Limited was engaged in various businesses:
Coal based power business;
Gas based power business;
Financial services business;
Tele-Communication business
FACTS

39. RIL… demerger The family arrangement aims at
Segregation between the two Ambani Brothers
Provision for Specified Investors was made:
Holdings of RIL and other companies in the control of Mr. Mukesh Ambani were transferred to a wholly owned subsidiary, Reliance Industrial Investments and Holdings Limited (RIIHL) along with a Private Trust (Petroleum Trust).
RIIHL and Petroleum Trust were described as “Specified Investors” which renounced their rights in the scheme itself.

40. RIL… demerger
As a result of demerger the shareholders of Reliance Industries Ltd. other than “Specified Investors” got one share each in the following four resulting companies for each share held in RIL as on the record date:
Reliance Energy Venture Ltd. (REVL)
Reliance Communication Venture Ltd. (RCOVL)
Reliance Capital Venture Ltd. (RCVL)
Reliance Natural Resources Limited (RNRL)
The shares of all these resulting companies got listed on the stock exchanges under the provisions of Cl of the SEBI (DIP) Guidelines.

41. Benefits achieved…….. Particulars Amount (Rs.) @928 92800 (@708) 70800
24th March 2006
20th December, 2007
Value of the shares held by a shareholder as on record date (25th Jan,2006) (A)
100 shares
@928
92800
Shares in RIL
100
Shares in REL
Shares in RCOL
Shares in RCL
Shares in RNRL
Total
108300
684500
Net benefit
15500
576200

42. REDUCTION OF CAPITAL

43. Types of Reduction of Capital
Writing off Losses & Fictitious Assets
Correction of Over- Capitalization
Distinguishment of the Liability in respect of unpaid portion of face value.
Distribution of accumulated profits by Payment to shareholders a part of share capital.

44. Reduction of Capital- A Strategic Step
To Clean-up the Balance Sheet
To rationalize the capital base
Revival of Sick Company

45. RESTRUCTURING STRATEGIES
What's Your Move??

46. RAISING PROMOTERS’ HOLDING
FEW STRATEGIC MOVES
Strategy I
LISTING
(Without offer to Public)
Strategy II
RAISING PROMOTERS’ HOLDING
(Beyond 55%)

47. FEW STRATEGIC MOVES..contd
Strategy III
ACQUISITION OF LISTED CO.
(Exemption from Takeover Code)
Strategy IV
INCREASEING
THE RESOURCES
(Without raising Capital)

48. LISTING Direct listing is costly & complicated
Strategy I
Direct listing is costly & complicated
But Listing of Company provides for…..
Unlocking value of business
Brings liquidity
Attract investors for further growth

49. LISTING THROUGH MERGER
Strategy IA
Small/loss making listed companies are selected by unlisted strong companies
Unlisted company is merged with listed company with maximum possible shares to promoters of unlisted Company
Promoters of Unlisted Company get shares in a listed entity

50. LISTING THROUGH MERGER
Strategy IB
Merger of financially sound unlisted co with listed co
Acquisition of Regional Listed Company(RSE)
INDONEXT LISTING
Now your Company is ready for Listing
DIRECT LISTING

51. RAISING PROMOTERS’ HOLDING
Strategy II
RAISING PROMOTERS’ HOLDING
Revised provisions of SEBI Takeover Code does not allow promoters to acquire even a single share beyond 55%
Specific exemption to Merger/Demerger
An Unlisted company is created by Promoters
This entity is merged with listed company
Promoters’ holding is raised up to 75%

52. ACQUISITION OF LISTED COMPANY
Strategy III
ACQUISITION OF LISTED COMPANY
SEBI Takeover Code does not allow acquisition of shares of a listed company beyond 15% or Change in Control by any outsider without a PA
Specific exemption to Merger/Demerger
An Unlisted company is created by Acquirer
This company is merged with listed company
Acquirers’ holding may go up to 75% of increased capital base
The Management may also change.

53. INCREASING THE RESOURCES
Strategy IV
INCREASING THE RESOURCES
Basic purpose of merger is to Synergy of Resources, but the it also increases the capital base
High capital base make servicing of capital difficult
Proposed transferee company acquires shares in transferor company
Companies are merged
Crossholdings get cancelled
Resources got clubbed, capital base remain low. Effectively , increases EPS.

54. To sum up……
Restructuring offers tremendous opportunities for companies to grow & add value to the shareholders
It unlocks the true potential of the company
It is a Strategy for Growth & Expansion
It also helps in Cleaning up &
create Synergy of Resources

55. Thanks a lot…
Pavan Kumar Vijay