CORPORATE RESTRUCTURING

Types, Scheme, Listing & Explanatory Statement

Some provisions of the Companies Act, 1956 facilitate corporate, business or financial restructuring in a variety of ways. The main provisions are:

(1)	Chapter V of the Companies Act, comprising sections 390 to 396A, contains provisions on 'Arbitration, Compromises, Arrangements and Reconstructions.' [There are, however, no provisions on 'Arbitration' since section 389, which dealt with Arbitration, stands deleted].
(2)	Sections 100 to 105 of the Act facilitate reduction of share capital.
(3)	Sections 106 and 107 of the Act facilitate variation of shareholders' rights.
(4)	Section 494 facilitates restructuring of a company which is in the course of winding up.

 

 

Drafting of a scheme of amalgamation

The Companies Act or the Rules made thereunder do not prescribe any form or contents of a scheme of amalgamation. Conventionally, however, certain standard clauses are included in a scheme of amalgamation. These are as follows: —

1.	Appointed Date (or Transfer Date) of amalgamation.
2.	Effective Date of amalgamation.
3.	Capital structure of the transferor company and the transferee company
4.	Share Exchange Ratio.
5.	Transfer of undertaking and liabilities of transferor-company to the transferee-company from the appointed date.
6.	Continuance of legal proceedings of the transferor-company by transferee-company after the effective date.
7.	7. Transferor-company to carry on business on behalf of the transferee-company between appointed date and effective date.
8.	Effect of amalgamation on contracts of the transferor-company after the effective date.
9.	Services of the transferor-company's employees, their service conditions, effect of amalgamation thereon, retirement benefits, etc.
10.	Allotment of the transferee-company's shares to the transferor-company's shareholders in exchange of their shares in the transferor-company as per the share exchange ratio, treatment as to fractions, rights of the shareholders.
11.	Dissolution of the transferor-company (without winding up) on the effective date.
12.	Main objects of the transferor-company to become one of the main objects of the transferee-company.
13.	Conditions subject to which the scheme is to take effect.

 

 

LISTING AGREEMENT REQUIREMENTS

In order to ensure that listed companies do not in any way violate or override or circumscribe the provisions of securities laws or the stock exchange requirements, it has been decided to make suitable amendments in the Listing agreement.

Therefore, you are hereby directed under section 11(1) and 11B of the Securities and Exchange Board of India Act, 1992 to immediately take steps to amend the listing agreement as follows:

1. In clause 24 of the Listing Agreement, three new sub-clauses (f), (g) and (h) shall be added as under –

(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."

(g) "The company agrees to ensure that any scheme of arrangement/ amalgamation/ merger/reconstruction/reduction of capital, etc., to be presented to any Court or Tribunal does not in any way violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.

(h) "Explanation: For the purposes of this sub-clause, 'securities laws' mean the SEBI Act, 1992, the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 and the provisions of the Companies Act, 1956 which are administered by SEBI under section 55A thereof, the rules, regulations, guidelines etc. made under these Acts and the Listing Agreement."

(i) "The company agrees that in the explanatory statement forwarded by it to the shareholders under section 393 or accompanying a proposed resolution to be passed under section 100 of the Companies Act, it shall disclose the pre and post-arrangement or amalgamation (expected) capital structure and shareholding pattern."

2. Clause 31(c) of the Listing Agreement shall be substituted as under—

(c) "three copies of all the notices, call letters or any other circulars including notices of meetings convened under section 391 or section 394 read with section 391 of the Companies Act, 1956, together with Annexures thereto, at the same time as they are sent to the shareholders, debenture holders or creditors or any class of them or advertised in the Press."

The A. P High Court has held that in terms of clause 24 of the Listing Agreement, consent of stock exchanges is not compulsory and it would suffice if company files scheme/petition under sections 391, 394 and 101 before the stock exchange, a month before it presents scheme/petition before Court or Tribunal for its approval

 

EXPLANATORY STATEMENT

The Explanatory Statement as required under section 173 is quite different from the Explanatory Statement which is required under section 393(1)( a) of the Act.  Section 393(1)(a) does not ordain disclosure of all material facts. It not only enumerates the categories of particulars, but it deliberately makes a departure by omitting any reference to material facts. The legislature having used a different phraseology in the said two provisions, it must be held that the legislative intent under the said section 393 was not to provide for disclosure of all material facts.   Observe the usage of 2 different words viz. "material facts" & "material interest".

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