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KING SHARMA, , CHAPTER-1, , Corporate Restructuring is the process of significantly changing a company’s, business model, management team or financial structure to address, challenges and increase shareholder value. Corporate restructuring is an, inorganic growth strategy., Q.1 Motives of Corporate Restructuring, Financial Motive, Other motives, • To reduce risk, ▪ To expand marketing and, • To increase operating efficiency, management capabilities, ▪, To allow new products development, • To maximise the value of assets, ▪ To provide synergistic benefits, • To improve access to financial, ▪ To revive a sick company, markets, ▪ To resolve the bankrupt/insolvent, • To obtain tax benefits, company, • To eliminate competition, Q.2 Types of Corporate Restructuring, Financial Restructuring deals with restructuring of capital base and raising, finance for new projects. Financial restructuring helps a firm to revive from, the situation of financial distress without going into liquidation., Example: buy-back, Alteration/Reduction of capital and Debt Restructuring., Market Restructuring involves decisions with respect to the product market, segments where the company plans to operate on its core competencies., Technological Restructuring occurs when a new technology is developed that, changes the way an industry operates. This type of restructuring usually, affects employees, and leads to new training initiatives., Organizational Restructuring involves establishing internal structures and, procedures for improving the capability of the personnel in the organization, to respond to changes. These changes need to have the cooperation of all, levels of employees., Q.3 Benefits of Merger & Acquisition (Code=TIBA-EDP), Tax benefits: Companies also use M&A for tax purposes, although this may, be an implicit rather than an explicit motive., Improved market reach: Companies buy other companies to reach new, markets and grow revenues and earnings. A merger may expand two, companies’ marketing and distribution, giving them new sales, opportunities., Becoming bigger: Many companies use M&A to double the size of a, company this can be achieved much more rapidly through mergers or, acquisitions., , ARJUN COMMERCE ACADEMY, , Acquiring new technology: To stay competitive, companies need to stay on, top of technological developments and their business applications., Economies of scale: Mergers also translate into improved economies of scale, which refers to reduced costs per unit that arise from increased total output, of a product., Domination: Companies also engage in M&A to dominate their sector., However, since a combination of two large organization would result in a, potential monopoly., Preempted competition: This is a very powerful motivation for mergers and, acquisitions, and is the primary reason why M&A activity occurs in distinct, cycles., Q.4 Merger and Types of Mergers, ‘Merger’ is the fusion of two or more companies, whereby the identity of one, or more is lost resulting in a single company. A merger is a legal consolidation, of two entities into one entity which can be merged together either by way of, amalgamation or absorption or by formation of a new company. Example:, Vodafone – Idea, Types of Mergers, (A) Horizontal Merger: Horizontal Merger is a merger between companies, selling similar products in the same market and in direct competition and, share the same product lines and markets. Main objectives of horizontal, merger is to benefit from economies of scale, reduce competition, achieving, monopoly status and control of the market. Examples: Facebook’s acquisition, of Instagram, (B) Vertical Merger: Vertical Merger is a merger between companies in the, same industry, but at different stages of production process., To illustrate, suppose XYZ Ltd. produces shoes and ABC Ltd. produces leather., ABC has been XYZ’s leather supplier for many years, and they realize that by, entering into a merger together, they could cut costs and increase profits., They merge vertically because the leather produced by ABC is used in XYZ’s, shoes., (C) Conglomerate Merger, Conglomerate merger is a merger between two companies that have no, common business areas. It refers to the combination of two firms operating, in industries unrelated to each other. Example a watch manufacturer, acquiring a cement manufacturer, (D) Congeneric Merger: Congeneric merger is a merger between two or more, businesses which are related to each other in terms of customer groups,, functions or technology. Example: combination of a computer system, manufacturer with a UPS manufacturer., 1, , 1
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ARJUN COMMERCE ACADEMY, , KING SHARMA, Q.5 Difference between merger and acquisition, Merger, Merger is the fusion of two or more, companies, whereby the identity of one or, more is lost resulting in a single company., Old company cease to exist and a new, company emerges, It the takeover is friendly; it is called merger, New stocks are being issued, More legal formalities are to be complied, Vodafone - Idea, , Acquisition, , It is the purchase by one company of, controlling interest in the share capital of, another existing company., A new company does not emerge, If the takeover is hostile, it is called as an, acquisition, No new stocks are being issued, Very legal formalities are to be complied, Flip-cart - Myntra, , Q.6 Amalgamations and reasons for amalgamations, Amalgamation is a legal process by which two or more companies are joined, together to form a new entity or one or more companies are to be absorbed, or blended with another as a consequence the amalgamating company loses, its existence and its shareholders become the shareholders of new company., Reasons, (f) Managerial effectiveness, (a) To acquire cash resources, (g) To achieve growth and financial gain, (b) To eliminate competition, (h) Revival of sick bankrupt company, (c) Tax savings/advantages, (d) Economies of large-scale operations (i) Survival, (j) Sustaining growth, (e) To Increase shareholders value, Q.7 Demerger and Types. Mention conditions to avails benefits of IT, Act,1961, Demerger is an arrangement whereby some part / undertaking of one, company is transferred to another company which operates completely, separate from the original company. Shareholders of the original company are, usually given an equivalent stake of ownership in the new company., Types, 1. Divestiture: Divestiture means selling or disposal of assets of the company, or any of its business undertakings/divisions, usually for cash., 2. Spin-offs: A business action, where a company disjoins a division and, create new business entity, which is separately listed in the stock, exchange and has an independent Board of Directors. The shares of the, new entity are distributed to the shareholders of the parent company on, a pro-rata basis., 3. Splits: Splits involve dividing the company into two or more parts with an, aim to maximize profitability by removing stagnant units from the, mainstream business. Splits can be of two types, Split-ups and Split-offs., 2, , Split-ups: It is a process of reorganizing a corporate structure whereby all, the capital stock and assets are exchanged for those of two or more newly, established companies resulting in the liquidation of the parent, corporation., Split-offs: It is a process of reorganizing a corporate structure whereby the, capital stock of a division or subsidiary is transferred to the shareholders of, the parent company in exchange for part of the stock of the parent, company., 4. Equity Carve-out: A percentage of shares of the subsidiary company being, issued to the public. This method leads to a separation of the assets of the, parent company and the subsidiary entity. Equity carve outs result in, publicly trading the shares of the subsidiary entity., Conditions to avails benefits of IT Act,1961, 1. All the property of the undertaking, being transferred by the demerged, company, becomes the property of the resulting company by virtue of, demerger;, 2. All the liabilities relatable to the undertaking, being transferred by the, demerged company, become the liabilities of the resulting company by, virtue of the demerger;, 3. The property and the liabilities of the undertaking or undertakings,, being transferred by the demerged company are transferred at values, appearing in its books of account immediately before the demerger;, 4. The resulting company issues, in consideration of the demerger, its, shares to the shareholders of the demerged company on a, proportionate basis., 5. The shareholders holding not less than three-fourth in value of shares in, the demerged company become shareholders of the resulting company, or companies by virtue of the demerger., 6. The transfer of the undertaking is on a going concern basis., 7. Demerger in accordance with the conditions notified under Section, 72A(5) of Income Tax Act, 1961., Q.8 Slump Sale, The transfer of the undertaking concerned as going concern is called “Slump, sale”. It is a transfer of one or more undertakings as a result of sale for a lump, sum consideration, without values being assigned to the individual assets and, liabilities in such sale, where consideration can be in kind or cash., The main reasons of slump sale are generally undertaken in India due to, following reasons:, ✓ It helps the business to improve its poor performance., ✓ It helps to strengthen financial position of the company., , 2
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ARJUN COMMERCE ACADEMY, , KING SHARMA, ✓ It eliminates the negative synergy and facilitates strategic investment., ✓ It helps to seek tax and regulatory advantage associated with it., Q.9 Business sale/ Divestiture, Divestiture means selling or disposal of assets of the company or any of its, business undertakings/divisions, usually for cash. Reasons for Divestiture, ➢ Huge divisional loses, ➢ Continuous negative cash flows from a particular division, ➢ Difficulty in integrating the business within the company, ➢ Unable to meet the competition, ➢ Lack of technological upgradations due to non-affordability, ➢ Lack of integration between the divisions, ➢ Legal pressures, Q.10 Joint Venture, A joint venture (JV) is a business or contractual arrangement between two, or more parties which agree to pool resources for the purpose of, accomplishing a specific task may be a new project or any other business, activity. In a joint venture (JV), each of the participants is responsible for, profits, losses and costs associated with it., Types of Joint Ventures, (a) Equity-based joint ventures is a type of joint venture in which two or, more parties set-up a separate legal company to act as the vehicle for, carrying out the project., (b) Non-equity joint ventures also known as cooperative agreements, seek, technical service arrangements, franchise, brand use agreements,, management contracts, rental agreements, or one-time contracts., Example: Tata Starbucks Pvt. Ltd is a joint venture of Tata with Starbucks, Corporation, USA which runs a chain of Starbucks brand coffee shops across, India., Q.11 Strategic Alliance, A strategic alliance is an arrangement between two companies that have, decided to share resources to undertake a specific, mutually beneficial, project. It is an excellent vehicle for two companies to work together, profitably., Example: ICICI Bank and Vodafone India entered into a strategic alliance to, launch a unique mobile money transfer and payment service called ‘mpesa’., Q.12 Reverse Merger, A reverse merger is a merger in which a private company becomes a public, company by acquiring it. it acquires a public company as an investment and, , converts itself into a public company. The following are also known as, reverse merger, ✓ When a weaker or smaller company acquires a bigger company, ✓ when a parent company merges into its subsidiary company, ✓ a loss-making company acquires a profit-making company, The reasons for reverse merger are:, ➢ To carry forward tax losses of the smaller firm, ➢ Economies of scale of production, ➢ Marketing network, ➢ To protect the trademark rights, license agreements, assets of the, company, Q.13 Alteration of Share Capital, Alteration of share capital means, increase or decrease in or rearrangement, of share capital as permitted in Articles of Association. According to section, 61 of the Companies Act, 2013 a limited company having a share capital, derives its power to alter its share capital through its articles of association., As per the section the company may alter its memorandum in its general, meeting to –, 1. Increase its authorized share capital by such amount as it thinks, expedient;, 2. Consolidate and divide all or any of its share capital into shares of a, larger amount than its existing shares., 3. Convert all or any of its fully paid-up shares into stock, and reconvert, that stock into fully paid-up shares of any denomination;, 4. Sub-divide its shares, into shares of smaller amount than is fixed by, the memorandum., 5. Cancel shares which, at the date of the passing of the resolution in, that behalf, have not been taken or agreed to be taken by any person., The cancellation of shares shall not be deemed to be a reduction of, share capital., If consolidation and division, results in changes in the voting percentage of, shareholders, it shall be approved by the Tribunal., Q.14 Reduction of Share Capital, Reduction of Share capital means reduction of issued, subscribed and paid, up capital of a company. A company limited by shares or limited by guarantee, and having share capital may reduce its paid-up capital., As per Section-66 of Companies Act 2013, accompany may reduce its, share capital, if the following conditions are satisfied, • Authorized by share capital, • Passing a Special Resolution, 3, , 3
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ARJUN COMMERCE ACADEMY, , KING SHARMA, • Confirmation by NCLT, • No arrear in repayment of deposits and interest, Once company passes S.R for reduction of share capital, shall apply to, NCLT for confirmation of resolution., Application shall be accompanied by list of creditors certified by Md or, any of the two Directors and declaration that deposits and interest is not, in arrears., The creditors having and debt or claim against company are entitled to, object, if creditors objects, either he should be paid-off or his payment be, secured., Prior to confirming the capital reduction U/S 66 of Companies Act,2013,, tribunal shall consider the rights of creditors and ensure protection of, such rights., Tribunal shall give notice of every such application to the creditors, C.G,, ROC, SEBI and consider representation within a period of 3 months., If no representation has been received, it shall be presumed that they, have no rejection., Tribunal shall sanction such reduction after considering the account, treatment., Q.15 Reduction of share capital without sanction of the Tribunal, Reduction of Share capital means reduction of issued, subscribed and paid up, capital of a company. A company limited by shares or limited by guarantee, and having share capital may reduce its paid-up capital., a) Surrender of Shares - “Surrender of shares” means the surrender of, shares already issued, to the company, by the registered holder of, shares. Where shares are surrendered to the company, amounts to a, reduction of capital. But if, under any arrangement, such shares, instead, of being surrendered to the company, are transferred to a nominee of, the company then there will be no reduction of capital. Surrender may, be accepted by the company under the same circumstances where, forfeiture is justified., b) Forfeiture of Shares – a company may if authorized by articles, forfeit, shares for nonpayment of calls and the same will not require, confirmation of the tribunal., c) Diminution of Share Capital where the company cancels shares which, have not been taken or agreed to be taken by any person., d) Redemption of redeemable preference shares., e) Buyback of its own shares., Q.16 Creditors right to object to reduction of share capital, , The creditors having a debt or claim admissible in winding-up are entitled, to object., To enable them to do so, the Tribunal will settle a list of creditors entitled, to object., If any creditor objects, then either his consent to the proposed reduction, should be obtained or he should be paid off or his payment be secured., The Tribunal, in deciding whether or not to confirm the reduction will take, into consideration the minority shareholders and creditors., When exercising its discretion, the Tribunal must ensure that the reduction, is fair and equitable. In short, the Court shall consider the following, while, sanctioning the reduction:, (i) The interests of creditors are safeguarded;, (ii) The interests of shareholders are considered; and, (iii) Lastly, the public interest is taken care of., Q.17 Confirmation and registration, ➢ Section 66(3) of the Companies Act, 2013 states that if the Tribunal is, satisfied that either the creditors entitled to object have consented to the, reduction, or that their debts have been determined, discharged, paid or, secured, it may confirm the reduction of share capital on such terms and, conditions as it deems fit., ➢ Section 66(4) of the Companies Act, 2013 states that the order of, confirmation of the reduction of share capital by the Tribunal under subsection (3) shall be published by the company in such manner as the, Tribunal may direct., ➢ Section 66(5) of the Companies Act, 2013 states that the Company shall, deliver a certified copy of Tribunal order confirming the reduction, together with the minutes giving the details of the company’s, a) amount of share capital;, b) number of shares into which it is to be divided;, c) amount of each share; and, d) amount, if any, at the date of registration deemed to be paid-up, on each share, to the Registrar within 30 days of receipt of the, order of Tribunal who will register them., ➢ The Registrar will then issue a certificate of registration which will be a, conclusive evidence that the requirements of the Act have been complied, with and that the share capital is now as set out in the minutes., Q.18 Buy - Back and its advantages, According to Section 68(1) of the Companies Act, 2013, a company whether, public or private, may purchase its own shares or other specified securities, out of:, 4, , 4
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KING SHARMA, , ARJUN COMMERCE ACADEMY, , (i) its free reserves; or, (ii) the securities premium account; or, (iii) the proceeds of any shares or other specified securities., Advantages of the Buy-Back, ✓ It is an alternative mode of reduction in capital without requiring, approval of the National Company Law Tribunal, ✓ To improve the earnings per share, ✓ To improve return on capital, and to enhance the long-term shareholders, value, ✓ To enhance consolidation of stake in the company, ✓ To prevent unwelcome takeover bids, ✓ To return surplus cash to shareholders, ✓ To achieve optimum capital structure, Q.19 Procedure for Buy-Back, Section 68 of Companies Ac,2013, Articles of association of the company should authorize buy-back., Board of directors can approve buy-back up to 10% of the total paid-up, equity capital and free reserves of the company and such buyback has, to be authorized by the board by means of a resolution passed at the, meeting., Shareholders by a special resolution can approve buy-back up to 25% of, the total paid-up capital and free reserves of the company., In respect of any financial year, the shareholders can approve by special, resolution up to 25% of total equity capital in that year., The ratio of the aggregate of secured and unsecured debts owed by the, company after buy-back should not be more than twice the paid-up, capital and its free reserves i.e. the ratio shall not exceed 2:1., All the shares or other specified securities for buy-back are to be fully, paid-up., Listed company shall comply with the SEBI regulations and Unlisted, company shall comply with Companies Act, 2013, No offer of buy-back shall be made within a period of one year reckoned, from the date of the closure of the preceding offer of buy-back., Notice of general meeting shall be sent to shareholders for passing, special resolution for buyback of securities with explanatory statement., Every buy-back shall be completed within a period of one year from the, date of passing of the special resolution., Methods of Buy Back: -Tender offer, -Stock Exchange, , -Book Building, A declaration of solvency in Form No. SH-9 signed by at least two, directors of the company, one of whom shall be the managing director,, shall be filed with ROC., After buy-back company shall extinguish & physically destroy the shares, or securities so bought back within 7 days of the last date of completion, of buy-back., After buy-back company shall not issue same kind of shares for a period, of 6 months, except, bonus, ESOP, Sweat Equity etc., Register of buy-back shall be maintained in SH-10 and Return of Bubback shall be filed with ROC, within 30 days of completion in SH-11., Q.20 Creation of CRR account and prohibition of Buy- back, Section-69: When a company purchases its own shares out of free reserves, or securities premium account, a sum equal to the nominal value of the, shares so purchased shall be transferred to the capital redemption reserve, account and details of such transfer shall be disclosed in the balance sheet., Section 70: No company shall directly or indirectly purchase its own shares, or other specified securities—, (i) through any subsidiary company including its own subsidiary companies;, (ii) through any investment company or group of investment companies; or, (iii) if a default, is made by the company, in the repayment of deposits, accepted, interest payment, redemption of debentures or preference shares, or payment of dividend to any shareholder, or repayment of any term loan, or interest payable thereon to any financial institution or banking company., ✓ However, the buy-back is not prohibited, if the default is remedied and, a period of three years has lapsed after such default ceased to subsist., ✓ No company shall, directly or indirectly, purchase its own shares or, other specified securities in case such company has not complied with, the provisions of sections 92 (Annual Return), 123 (Declaration of, Dividend), 127 (punishment for failure to distribute dividend) and, section 129 (Financial Statement) of the Companies Act, 2013., Q.21 Buy-back from existing security-holders through tender offer, Regulation – 06: A company may buy-back its securities from its existing, security-holders, 15% of the number of securities which the company, proposes to buy back or number of securities entitled as per their, shareholding, whichever is higher, shall be reserved for small shareholders., Regulation–07: The company shall within 2 days of passing SR or BR, shall, make public announcement in English, Hindi and Regional languages., 5, , 5
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KING SHARMA, , ARJUN COMMERCE ACADEMY, , ▪ Company shall pass SR or BR as the case may be and appoint a merchant, banker., ▪ The company shall make public announcement within 2 working days, from the date of passing resolution., Regulation-17: The buy-back offer shall open not later than seven working, days from the date of public announcement and shall close within six, months from the date of opening of the offer., Regulation-18: The company shall upload the information regarding the, shares or other specified securities bought back, on its website on daily, basis., Q.23 Buy-back through booking building- Regulation-22, 1. Company shall pass SR or BR as the case may be and appoint a merchant, banker., 2. A public announcement shall be made at least seven days prior to the, commencement of the buy-back., 3. The company shall deposit amount in the escrow account, should be, made before the date of the public announcement. (as per Regulation-9), 4. Book building shall be done electronically., 5. The offer for buy-back shall be kept open to the security-holders for a, period of not less than fifteen days and not exceeding thirty days., 6. The merchant banker and the company should determine the buy-back, price based on the acceptances received and the final buy-back price., Q.24 Obligation of the company and the merchant banker, Obligation of the company, letter of offer, the public announcement or any other advertisement, shall not contain any misleading information., The company shall not issue any shares including by way of bonus till, the date of expiry of buy-back period., The company shall pay consideration only by cash;, The company shall not withdraw the offer to buy-back after the draft, letter of offer filed with the SEBI or public announcement of the offer, to buy-back is made, The company shall not raise further capital for a period of one year from, the expiry of buy-back period., Obligation of the Merchant Banker, The company is able to implement the offer;, The provision relating to escrow account has been complied with;, Firm arrangements for monies for payment to fulfil the obligations, under the offer are in place., , Regulation–08: The company shall within 5 working days of the public, announcement file with the Board a draft-letter of offer & declaration of, solvency, through a merchant banker., SEBI shall provide its comments on draft offer letter within 7 working days., Regulation-09: The date of the opening of the offer shall be not later than 5, working days from the date of dispatch of letter of offer., The offer for buy back shall remain open for a period of 10 working days., Escrow Account, a) the company shall, on or before the opening of the offer, deposit in an, escrow account in the following manner:, Consideration payable is up-to 100 Cr = 25% of consideration, Consideration payable is >100 Cr = 25% up-to 100 Cr and 10%, thereafter, b) the escrow account referred to above shall consist of:, ➢ cash deposited with a scheduled commercial bank, or, ➢ bank guarantee in favour of the merchant banker, or, ➢ deposit of acceptable securities with appropriate margin, with the, merchant banker, or, ➢ a combination of (i), (ii) and (iii) above;, c) where the escrow account consists of bank guarantee or deposit of, approved securities, the company is also required to deposit with the, bank in cash, a sum of at least one per cent of the total consideration, payable., d) SEBI, in case of non-fulfillment of obligations under the Regulations by, the company forfeit the escrow account either in full or in part;, e) The amounts forfeited may be distributed pro rata amongst the, security-holders who accepted the offer and the balance, if any, shall be, utilized for investor protection., Regulation-10: Company within 7 working days shall verify the process and, make payment to the shareholders., Regulation-11: The company shall also ensure that all the securities boughtback are extinguished within7 days of expiry of buy-back period., The certificate shall be furnished to the Board within7 days of, extinguishment and destruction of certificates., Q.22 Buy-back through the stock exchange, The buy-back should be made only on stock exchanges having Nationwide, Trading Terminal facility, Regulation-16:, ▪ Buy-back shall not be from the promoters or person in control of the, company., 6, , 6
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ARJUN COMMERCE ACADEMY, , KING SHARMA, , The public announcement & the letter of offer shall be as per the, , o, , where at least 90 percent of the issued share capital of the, transferee company is in the beneficial ownership of the, transferor company, or, o where the transfer takes place between a parent company and, a subsidiary company one of which is the beneficial owner of, not less than 90 percent of the issued share capital of the other., Stamp duty is payable on such orders, being an instrument liable to duty, as a Conveyance Deed as was held in Hindustan Lever Ltd. vs. State of, Maharashtra, However, stamp duty being a state subject, the above would only be, applicable in those States where the State Government follows the, above stated notification of the Central Government otherwise stamp, duty would be applicable irrespective of the relations mentioned in the, said notification., Imposition of Stamp Duty is the prerogative of the State Government,, hence applicable in only those states that have adopted the said, circular., Q.27 XYZ Ltd. is a company listed on the National Stock Exchange. The latest, audited financial position of XYZ Ltd. is as under:, (Amount in Rs. crore), Paid up equity capital- 442, Free Reserves -20,347, Total secured and unsecured debts 1,275 The company intends to buy-back, its fully paid up equity shares of Rs.5 each not exceeding 2,05,85,000 equity, shares at Rs.950 per equity share payable in cash for aggregate, consideration not exceeding Rs.1,955.57 crore. Examine whether the above, buy-back offer through tender route can be approved by the Board of, Directors, keeping in view the provisions of the relevant SEBI Regulations, and Companies Act, 2013., Quantum of Buy-back (Section 68 of the Companies Act, 2013), • Board of directors can approve buy-back up to 10% of the total paidup equity capital and free reserves of the company and such buyback has to be authorized by the board by means of a resolution, passed at the meeting., • Shareholders by a special resolution can approve buy-back up to, 25% of the total paid-up capital and free reserves of the company., In respect of any financial year, the shareholders can approve by, special resolution up to 25% of total equity capital in that year., The ratio of the aggregate of secured and unsecured debts owed by the, company after buy-back should not be more than twice the paid-up, capital and its free reserves i.e. the ratio shall not exceed 2:1., , Regulations;, , The merchant banker should furnish to SEBI, a due diligence certificate, which should accompany the draft letter of offer;, the contents of the public announcement & letter of offer are true, fair, and adequate and quoting the source wherever necessary., Q.25 Is external reconstruction is superior to internal reconstruction, External reconstruction, ✓ External reconstruction is a process where a company under goes a, change through mergers, amalgamations, acquisitions etc., ✓ It is an arrangement whereby the assets and liabilities of 2 or more, companies come under the control of newly formed company, ✓ External reconstruction is a situation where an existing company is, liquidated and taken over by another the company and there is transfer, of assets and liabilities., ✓ Shareholders of the transferor company are issued shares in the newly, formed transferee company, based on the agreed share exchange ratio., Internal reconstruction, ✓ Internal reconstruction is a method where an arrangement is made by, a company to improve its financial position without going through, liquidation., ✓ When a company incurs loss for a number of years, the balance sheet, does not reflect the true position of the business., ✓ Here, the assets are overvalued and it has many intangible assets and, fictitious assets, which do not depict the true financial position of the, company., ✓ In this case of internal reconstruction, the assets are revalued, liabilities, are negotiated and the losses suffered are written off by reducing the, paid-up value of share., External reconstruction is much wider and complex activity as compared to, internal reconstruction. External reconstruction is growth-oriented process, and Internal reconstruction is survival-oriented process. Both are vital for, specific busines scenario., Q.26 Payment of stamp duty under Indian Stamp Act, 1899 is required, even in cases of orders made by National Company Law Tribunal (NCLT) in, terms of Section 230 to 240 of the Companies Act, 2013. Are there any, exceptions or exemptions?, The Central Government has exempted the payment of stamp duty on, instrument evidencing transfer of property between companies limited, by shares as defined in the Indian Companies Act, 1913, in a case:, 7, , 7
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ARJUN COMMERCE ACADEMY, , KING SHARMA, In the instant case, since the paid-up equity capital and free reserves is, Rs.20,789 crore as per the latest audited financials, the Board can, authorize through a resolution passed at its meeting the buy-back of, shares totaling Rs.1,955.57 crore, which is less than the prescribed 10%, limit., After the buy-back scheme for Rs.1955.57 crore has been fully, completed, the company's reserves would drop to Rs.18401.72 crore, and its paid-up equity capital would drop by Rs.10.29 crore to Rs.431.71, crore. Hence, its paid-up capital and free reserves after buy-back would, drop to Rs.18833.43 crore. Thus, the debt-equity ratio after buy-back, scheme has been fully completed would be 0.068, which is less than the, stipulated 2:1., Hence, XYZ Ltd. can proceed with the proposed buy-back scheme by, passing a resolution passed at the Board meeting., , Buy-back of equity shares should not exceed 25% of total paid up equity, capital of the company in any financial year., So, equity shares can be bought back maximum to the extent of 25% of (Rs., 100 crore - Rs. 60 crore) = Rs. 40 crore., Q.29 The capital structure of Johar Ltd. is as follows:, • 5 lakh equity shares of Rs. 10 each fully paid-up, • 10 lakh equity shares of Rs. 10 each on which Rs. 5 is paid-up., • Free reserves of Rs. 3 crore., The Board of directors of the company has passed a resolution authorizing, the buy-back of shares worth Rs. 40 lakh for the financial year 2009-10. Is, the Board of directors empowered to do so? Give reasons., As per the provisions of Section 68 of the Companies Act, 2013, Board can, authorize the buy-back of securities not exceeding 10% of the paid up equity, capital & free reserves of company i.e. 10% of (50,00,000 + 50,00,000 +, 3,00,00,000) = 40,00,000 ⇒ However buy-back of securities should not, exceed 25% of total paid up equity capital of the company in any financial, year = 25% of (50,00,000 + 50,00,000) = Rs. 25,00,000., Hence, in the above case, the Board of Directors is not empowered to, buyback of shares worth Rs. 40 lakh for the financial year 2009-2010. But, the buyback of equity shares in any financial year should not exceed 25% of, the total paid-up equity capital of the company., , Q.28 Tarjan Ltd. wants to buy-back its equity shares. The company has, equity share capital of Rs. 100 crore (face value of Rs. 10 fully paid-up), and free reserves of Rs. 200 crore. Partly paid equity shares are Rs. 60, crore. Preference share capital of face value Rs. 100 fully paid is Rs. 40, crore. The company seeks your opinion about the quantum of shares, that can be bought back., Answer:, Equity Shares, : Rs. 100 crore, Free Reserves, : Rs. 200 crore, Partly paid equity shares : Rs. 60 crore, Preference shares capital : Rs. 40 crore, Maximum amount up-to which board can approve buy-back of shares is, 10% of total paid up equity capital & free reserves of the company., In this case matrix Ltd. has a paid up equity capital = Rs. 160 crore and Free, Reserves = Rs. 200 crore .Total = Rs. 360 crore., Maximum amount board can approve buy-back of shares, = 10% of Rs. 360 crore, = Rs. 36 crore, Maximum amount up-to which the shareholders can approve buy-back of, shares is 25% of paid up capital & free reserves., In this case, total paid up capital & free reserves, = (Rs. 100 crore + Rs. 60 crore + Rs. 40 crore + Rs. 200 crore), = Rs. 400 crore, Shareholders can approve up-to 25% of Rs. 400 crore = Rs. 100 crore, , Telegram Channel Name: csprofessionalnew, Just subscribe the channel for free notes., KING SHARMA, , 8, , 8
