5- Am Ab Rc Comp& MRTP

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Mar. 22nd, 2012

MMSSEM-II- LTAB -13.

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Mar. 22nd, 2012MMSSEM-II- LTAB -13. 2

RESTRUCTURING PROPOSALS

Restructuring Proposals can be Internal or External.

The Statutes and Compliances are numerous and the

Authorities to be approached are SEBI, HIGH COURT,

COMPANY LAW BOARD, SHAREHOLDERS,

SECURED LENDERS, REGISTRAR OF COMPANIES,

WORKING CAPITAL BANKERS and obviously the staff

and Management Team.

The Companies Act, 1956 in Sections 391 to 396 mentionsabout ARBITRATION, COMPROMISES,

ARRANGEMENTS and RECONSTRUCTION.


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AMALGAMATION happens when two ormore existing companies go intoliquidation and a new company is

formed to take over their business.Eg. If XY Ltd is formed to take over thebusinesses of two existing companies,X Ltd. and Y Ltd.

ABSORPTION happens when one ormore existing companies goes intoliquidation and



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some existing company takes over itsbusiness.Eg. If the business of an existing company XLtd is taken over by another existing

company Y Ltd.

EXTERNAL RECONSTRUCTION happens whenone existing company goes into liquidation

and a new company is formed to take overits business.



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Eg. If a new company X(New) Ltd is formedto take over the business of an existingcompany X Ltd .

Amalgamation includes Absorption, and insuch cases, a new company may or may notbe formed.Accounting Standard 14 of ICAI

( Accounting for Amalgamations) is amandatory standard.

AMG can be of two types, namely:-



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AMG in the nature of Merger; &AMG in the nature of Purchase.

Amalgamation in the nature of Merger:-The distinctive features are -

The assets & liab. of the Transferor Cobecome the assets of the Transferee Co;

Shareholders of the Transferor Co, on AMG,

immediately become shareholders of the



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Transferee Company.The business of theTransferor Co is

intended to be carried on by the Transferee

Co;The Book value of the assets is neither

revalued nor adjusted, excepting to ensureuniformity in accounting policies.

The Pooling of Interests Method ofAccounting is followed for this type of AMG.



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AMG in the nature of Purchase :-This method is used when some of theconditions of the earlier type are notsatisfied.

The method of Accounting applied is Purchase Method In this method, thedifference between Purchase Considerationand Value of Net Assets is either Goodwill

or Capital Reserves. The Goodwill shall haveto be amortised to Income within five years.



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CONSIDERATIONas defined in AS14 is theaggregate of the shares and other securities issuedand the payment made in the form of cash or otherassets by the Transferee Co to the shareholders of

the Transferor Co Some examples.. To solve 2/3 problems.



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In IR, the companys existing financialstructure is reorganised without dissolvingthe existing company, and forming a newcompany. This can be done by

1) Alteration of Share Capital- sec 94 to 97;

2) Reduction of hare Capital sec 100 to 105;

3) Variation of Shareholders Rights sec 106;

4) Scheme of Compromise / Arrangement sec 391 to 393 and 394A;



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COMPROMISE ( C ) refers to an amicable settlementof differences by mutual concessions by parties todispute. C presupposes the existence of somedispute and the objective is to settle the disputes

between the company and its Creditors / Members.

ARRANGEMENT carries a wider meaning thanCompromise. It implies re-arrangement of rights

and /or Liabilities of members/creditors withoutthe existence of any dispute.



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(THE STATUTORY GUIDELINES)

Sec. 390The expression Arrangement includes a

reorganisation of the Share capital of the company by the

consolidation of shares of different classes or by the division

of shares into shares of different classes or, by both these

methods; and

Unsecured Creditors, who may have filed suits or obtained

decrees shall be deemed to be of the same class as other

unsecured creditors.

Sec. 391Power to make Compromise or make

Arrangements with Creditors and Members -


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(THE STATUTORY GUIDELINES)(contd..)

Where a Compromise or Arrangement(A) with Creditors

and Members is proposedbetween a company and its

Members/creditors or any class of them, the NCLT may,

order for a meeting between the company and the second

party- to be called , held and conducted in such manner as theTribunal(T) directs.

If three-fourths of the members/creditors in terms of value,

agree to any C / A, it shall be binding on all creditors/members of that class, on the company, and the Liquidator, in

case the company is being wound up. However, the T shall

give its approval only after it is satisfied with the financial


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Results and the Auditors Report has been furnished

and studied.

The Order of the T shall have no effect until a certified copy

of the Order is filed with the Registrar.

The company shall, after the Order is issued, attach withevery copy of the MOA, a copy of the Order.

Sec. 392Power of the Tribunal to enforce C/ATheT

shall have the powers to supervise the carrying out of theOrders for the C/A, and also has the powers to modify the

Scheme, if the situation demands so.


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Sec. 393Information as to Compromise or Arrangements

with creditors and members - the Notice calling for the

meeting shall clearly state the terms and conditions of the

C/A, and also explaining the material interest of the

Directors, in every possible capacity, and the impact that

such interest shall have on the C/A.

In case the Debholders are also involved, similar clarification

to be given to the Trustees of the Debholders.

For non-disclosure of information or suppression, every

Officer can be penalised.


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Sec. 394Provisions for facilitating Reconstruction and

Amalgamation of Companies - where an application has

been made to the Tribunal u/s 391, for the sanctioning of a

C/A, between a company and creditors/members, and

a) That the C/A has been proposed for the purposes of, or inconnection with, a scheme for the R of any company, or

the A of any two or more companies; and

b) That under the scheme, the whole or any part of the u/t,

properties or liabilities of any company concerned in thescheme( here referred as Transferor Company) is to be

transferred to another company( here referred as

Transferee Company), the Tribunal shall, make


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Provision for all or any of the undermentioned matters:-

i) The transfer to the Transferee company of the whole or

in part of the u/t, properties or liabilities of any

Transferor Company.

ii) The allotment or appropriation by the transferee

company of any shares, debentures, policies, or like

interests in that company as mentioned in the C/A;

iii) The continuation by or against the transferee company

of any legal proceedings pending by or against anytransferor company;

iv) The provision to be made for any person who dissents

from the C/A; and


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vi) Such incidental, consequential and supplemental matters

as are necessary to secure that the R / A shall be fully and

effectively carried out.

Within 30 days of the passing of the Order, the company

shall file with the Registrar a certified true copy.

Sec. 394ANotice to be given to C/G for applications u/s

391 and 394 :- The Tribunal shall notify every applicationmade to it and shall take into consideration any

representation made by the Govt. before passing an Order.


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AMALGAMATION PROPOSALS


Sec 395Power and duty to acquire shares of

shareholders dissenting from the Scheme or Contract,

approved by majority- Where nine-tenths of the

shareholders of the company whose shares shall get

transferred agree, the Transferee company, within six

months from the date of approval of the amalgamation,

give notice to the dissenting shareholders to acquire their

holding at the terms as agreed to, in accordance with the

Scheme.

1. Sec 396(5) defines a Dissenting Shareholder as one

who has not assented to the Scheme or Contract, and


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any shareholder who has failed or refused to transfer his

shares to the Transferee Co. in accordance with the Scheme.

Sec 396Power of the C/G to provide for Amalgamation

of companies in national interest

Where the C/G is of the

view that two or more companies should be amalgamated in

the public interest, it shall, by notifying in the Official

Gazette, order so with such property, powers, rights, interests,

authorities and privileges and such liabilities, duties andobligations, as may be specified in the Order.

U/s 396A, the Books and Papers to be preserved for the

amalgamated Co. till the C/G desires.

AMALGAMATION PROPOSALS



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COMPETITION ACT, 2002.

MONOPOLIES AND RESTRICTIVE PRACTICESACT, 1969.



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An Act to provide, keeping in view theeconomic development of the country forthe establishment of a Commission toprevent practices having an adverse effect

on competition, to promote and sustaincompetition in the markets,to protect theinterests of the consumers and to ensurefreedom of trade carried on by other

participants in markets, in India, and formatters connected therewith or incidentalthereto.



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Sec 2 defines some important terms like :-

a) Acquisition, Agreement, Cartel,

ba) Appellate Tribunal means the the Tribunal

established u/s 53A of the Act;f) Consumer means a person who buys any

goods or hires any service ..

h) Enterprise means any person or a Dept. of

the Govt. engaged in the activity ofproduction, storage, supply, distribution,acquisition or



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control of articles or goods, includingdealings in shares and debentures.

Sec 3 Anti Competitive Agreements:No enterprise or AOP shall enter into anyagreement in respect of production, supply,distribution, storage, acquisition or controlwhich causes or is likely to cause an

appreciable adverse effect on competitionin India. This includes a Cartel.



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This section does not apply to JVs providedit increases the efficiency in production,supply, distribution, storage, acquisition orcontrol of goods or provision of services.

Under this provision, the following activitiesare contraventions :- Tie-in arrangementb) exclusive supply agreement c)

exclusive distribution agreement d) refusalto deal &e) resale price maintenance.



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The above practice includes unfair ordiscriminatory action, limiting or restrictingproduction or services, obstructing ordenying market practices, entering intocontracts with supplementary tags, and tospread its dominant status into anothermarket.



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This section discusses about Mergers andAmalgamations of two or more units andthe adverse impact that may arise on faircompetition due to this combination.

The Commission shall, on a writtenapplication to it, examine the impact of thiscombination and grant its approval.

Sec 7 mentions about the setting up of aCOMPETITION COMMISSION of INDIA.



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Sec 53A discusses abut establishing anAPPELLATE TRIBUNAL.



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An Act to provide that the operation of theeconomic system does not result in theconcentration of economic power to thecommon detriment,for the control ofmonopolies, for the prohibition ofmonopolistic and restrictive trade practicesand for matters connected therewith or

incidental thereto.



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Section 2 defines some important terms likethe MRTP Commission, Director General ofInvestigation and Registration, Undertaking

( which by itself or jointly with inter-connected u/ts produces, supplies,distributes or controls not less than one-fourth of the total goods that are produced

or supplied in India, or services rendered.)Sec 3 states that the Act is not applicableto:



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Govt Controlled company, FinancialInstitutions, Co-operative Societies, orTrade Unions.Secs 5 to 19 discusses about theappointment, powers, functions of theMRTPC and DGIR and the ways forimplementing the Act.Sec 27 Division of an Undertaking: TheMRTPC, on receiving a complaint from aTrade Association, or Customer, or fromthe State/



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C Govt. or upon its own knowledge orinformation, is of the opinion that that theworking of the U/t is prejudicial to thepublic interest, or has led, or is leading, or

is likely to lead, to the adoption of any MTPor RTP, inquire, as to whether it isexpedient in the public interest to make anorder-

For the division of any trade of the u/t bythe sale of any part of the u/t or assetsthereof, or



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for the division of any u/t or interconnected u/tinto such number of u/ts as the circumstancesof the case may justify. The C/G to be informedof the decision by the MRTPC.

Sec 27A empowers the C/G to direct severanceof inter-connection between U/ts.Sec 31states about Investigation byCommission of MTPs If the C/G feels that

MTP is prevailing, then it can order theCommission to



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inquire and to report the findings.u/s 32, all MTPs are prejudicial to publicinterest except when the C/G is a Party or ifit is for Defence related needs or forInternal Security.



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Certain activities/agreements as mentionedbelow, needs to be registered :-

Which restricts the buying or selling ofgoods;

For purchase of goods to also agree topurchase some other goods;

Restricting a person to trade only in the

goods of the Seller;To buy or sell at pre-determined prices;



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To force discounts, rebates or credit;Restricting the re-sale prices as fixed by the

Seller;

To restrict the supply of goods or toearmark the market area for business;

Sec 35 states about Registration ofAgreements as ordered by the C/G.



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UTP is a trade practice, which, for thepurpose of promoting the sale, use orsupply of any goods, or for the provision ofany services, adopts any unfair method or

unfair or deceptive practice, including theundermentioned practices:-

Falsely represents that the goods are of a

particular standard quality, grade,composition, model etc.

Falsely represents that the services are of a



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particular standard, quality or grade; Falsely represents second-hand goods as

new goods;

Makes a false or misleading representationconcerning the need for, or the usefulnessof any goods or services; etc.

Sec 37 Investigation into RTPs by MRTPC :Whether a RTP has been registered or not,the



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Commission ( C ) can conduct an enquiryand if it is of the opinion that the practice isprejudicial to public interest, the C canorder for the discontinuance of the practice

or shall be modified as the C directs.

Sec 38 discusses about Presumption as topublic interest. AnyRTP is prejudicial topublic interest unless the MRTPC isconvinced that the RTP is for the publicgood.



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