co rrectneor othrwis oi?il"-#J"t:"::Hi:, ss e e J:' published herein.

and the Institute not i|. "nr*"rs i.

exam n rt is, o*"uj,.l i: it",::';:,lJ inatio s n i5 :';:il:;: are to be treated model as

",:;

hopes rhe that curoer_irui i-r.i6ri,Eili *irr *"' :::,t:," studentsin oro.,r,-i.,^-r-^,-.1^'il'-i.Tt assist]I.^tt:le the
andnotas exhaustive

These answers havebeen.wrirm

i:n[,5.::ltt*.9tobeweflu"r.uO in"u;;;ffi;: lilx" *iin students expected1th" "f are

:T,!:.y"/Rutes examtnatton

TheGuideline Answers contain information the based orill

p,;;;;;";;;;",,

made sixmontns upto prioitl'ir,"ir",

C O N T E N T S
Page

MODULE II '1.Financial Treasury Forex and Management 2. Corporate Restructurjng Insolvency and

PROFESSIONAL PROGRAMME EXAMINATION JUNE201 1

FINANCIAL, TREASURY AND FOREX MANAGEMENT

Timeallowed 3 hours : Maximummarks , 00 : NOTE: 1. AnswerFIVEquestions includingeuestionNo.1 whicnts compulsory. Alt worktng notesshould showndistinctly. be 2. Tables showing present the valueof < 1 andthe present vatue an annuity of of < 1 for 1S yearsareannexed. 'l Question Comment any fourof thefollowing on : (i) A manager a significant to play in theoverallfunctioning a has role of _treasuty Ilrm.
(ii) A tirn's stock price is not related to its mix ot debt and equity financing. (iii) Depreciationis a source of internal finance. (iv) A stable dividend policy is always preferable to ftuctuating dividend policy. (v) Riskand uncertaintyare quite inherentin capitat budgeting decisions.

Answer1(i) Thedifferent roles treasury of manager follows are :

(5 marks each)

1. Originating roles: The treasury manager inducts and originates systemof accounting thefirm.Routine for accounting thefirmis thencarried along of out theseestablished systems. The treasurymanager complies exhaustivJ operations manual theguidance theusers. for of 2. Supportive roles : The treasurymanager supports activities other the of departments based conslruclive on coordination. 3. Leadership : Thisrolecomes playduring roles into times exigency of which can occur during timeof systems bread down. 4. Watch roies Treasury dog : manager theeyesandearsof themanagement. is As a processor the financial of transaclions, keepsa warcnon suspecls he bungling frauds thefirm. and in 5. Learning roles: Treasury manager continuously learns new accounting the concepts technological and changes adopts and these changes open with mind; educates other departments firms of about damages. Answer 1(ii) Theory modern _ of financjal managementby Franco Modigliani Merton and Miller concluded the valueof a firmdepends that solely its futur; earnings on stream, and

is re,ated ff;i?:':"r1'Jl'"'d,ffi;i; i;p;i;;;';;;'1.""f#on"unor ro ,rs i"."

Answer1(iii) As regarcls jt is depreciatjon, a deductjon of profjts out of thecompany as peraccounting on thebas.is calculated rules ol estimateJ ;";ii;; ;;, tooriginat oftheassers. vatue This.resutrs inreductron J;"""r"fit|nfl;#il,;Xll the firmhasto pay. lesser taxes. ThisUrrg. rrnd.'il tie,iims. usuatty, entire amount the deducted towards deDra.cialion on riri"o a"s"*t"i"'nJ, lnu"","o, ,heacquisition andreplacemenlfixed "or.ii ot assets ;. .*"0 and ""Jru,i."ii"

(debffinanced) courd increase income firm therr bvseting trrose snares r.[in"g pro"""o".prus a-ni ".f"""rr"g"o ih! funds, buy sharesin an unteve-raged borrowed to seting shares therevera^g-ed farreqrfiUi;i"u"r'""trrm.The simultaneous or in ririr orirsi rntn" unreveraged wourd drive prices theslocks.to.tne rirm the ";J wnEre of "iiiI["J ortnetwo point tneia]Jes firms wourd

used ;;;;;;rJ::i3lgell:ffi:fil,:] capital structureirrelevant..rf fi"""'.i"gr";;t"d is debi uu,r" equity financing, investors owned;ha;;;;; ,n'riTg!-',", ,orthefirm than then who

markets impries (which zerotaxes)..rhey

z henceits value is unaffected_by its debt/equity mix. They conctuded that a firm,svalue stems from its assets,regardless of how thoseassetsare financed. The theorywas based on reslrictive set of assumptions,

PP-FTFMJune 20i 1

.o,,." workjns io"i".ffi:::"r;:if#"","i,i,:l liiil :;3,11:Tro,",y or "upitur "o

Butthere exjsts controversy a whether depreciatjon should raKen a source oe as Internat of funds.Whatever mavbe the thatthe depreciation a sum,that "rt.""i" "r.r"'' ";;;;;""r"r, thetactremains is i"."t upurrout or O;;n.:". retained withinthe Dusrness finance capital and the needsin the nor."f 6u.in!r" rourrne, and as such oeprectationtrueacademia in sense deemed aour""oi ,n,"rnal be a, linance. " Answer1(iv) A stabre Dividend poricv read higher mav ro stock prices becausesustains it investors confidence theyvalue as more tre.divioenl wnich arJ."n"i"i"i" **,ved. rfdividends rtuctuate investors discount may with..orne p"r"*nt"g"'p;;["t,ii r""ro, , ,he i tiketjhood "

rnvestments byinsritution;ilij:fl:.* used

The djvidendpolicyhas to be adapted

i""'"#J]io""o"'nonevearmay $':"""-1;i',:?liil[:'il:t1yi:li':5:";"i;1ffi thesecurity the from

approved of th; list

;Hlonlill:]#tempr
Answert (v)

proronsed i'r"rs"ror"".. isbetterr;ra;;r",Jf""jj.r,:UHlill periJJ tt lilo:Lo"in, to toprotect

s-harehorders i;;r.;;;;;;"rions inearninss io

to the of indusvy economy. tn" .o:llJ-,..:o"r"ilrg natureand envrronments the firm, and 't ; hig;tyiyirrcat indusrry, the machrne tike toolsjndustry, management. ils cannot cieateihrJug; dividends stabitily as doesnorcxist.A lowpay-out u"", p"ri"j'L"""iil" regurar in

Riskanduncertainty: Capital budgeting decision is oy uncertainties of rnvestment present investment surroundeo greatnumber is and i.rrtui". ii" futureis uncertain

J pp*FTFN4*June 2011 andfullof risks. Longer period project,. lhe of greater maybe the nskanduncertainty. Theestimates about cosl,revenues prof maynot6ome and it:s true. arequiteinherent capirat in budgeting decisions. Thisjs so T1T:ertainty oecause decisions capital "^^:l:! rnvestment and budgeng areictiois ot todaywhichbear fruits future in which unroreseen. is ruiureis uniert# inuoru" ri"r,.Theprojection ofprobabilitycash of inflows made today notcertain "noaln[veo rnruture. are to ue seasonal iluc.tuations business and cycles bothdelive, neavy impaci ufon tf,e inflows and outflows projected difterent for project proposars. costot caprrar "".f, orfers The which cut off rates mayalsobe inflated deilated or under ou"in""" ilnoition.. "v"i" Inrration defration bound etfect investment and are to the decisions future in period rendenng degree uncertainty the of morereverse and enhancing scopeof risk. the Technological developments otherfactors enhance degree risk are that the of and uncertainty rendering by plants equipments and obsolete theproject of date.All and out these circumstances combined together affect capital OuOgeiing iecisions. Question 2 (a) lndigoLtd. hasthefollowing capital structure: < in Lakhs Ordinary shares < 1 each of Retained earnings 87"Debentures 1 ,000
tou

440

1.600 tn orderto underlake programme expansion, companyrequires a of the to raise additional capitalof < 400 takhand threealternative finaniing schemes are underconsideration : (i) A rights/ssue,af nominalvalue,of an additionat 4A0bkh < I ordinary shares; or (ii) issue, nominal at vatue, lakh,17yo 400 preference shares of< 1:or (iii) lssuean additionat 400lakhof 8%" < debentures. Without expansion the programme, lndigoLtd.'s estimated profitbefore annuat tnterestand tax in the foreseeable futureis < 200 lakh. lf theprogramme proceeds,this will rise to < 290 lakh.At present,the market vatues the of company's securities : are Ordinary shares Debentures < S.4O (ex-dividend) share per < 110per < 100nominal

and the last ordinary dividend was 20 paise per share.lf expansion does not take place, ordinarydividendsare expected to grow at a constant rateot Z.S% per annum. After some initial fluctuations,the anticipated effect of expansion on dividendsand market values is expected to stabiliseas follows :

PP-FTFM-June 1 201 Expansion Financed by

Rights /ssue r 5.60 Marketvalueof debentures < 100 per < 110 nomtnal
Market value of a preference share AnnualgroMh rate in ordinary shares NA S.S%

Preference Shares < 5.80 < 110

1.14 4.0%

Debentures < 6.00 < 108

NA
5.00/"

Marketvalueof an ordinaryshare

I necompany's iss.ubject corporation profit to taxat Ssy"andthis is unlikely rate you tochange. arerequired to ri, tin"n"ing scheme: ""t"uiat" ""li2,ti"irZur" (i) the gearing
ratio (ii) the profit availabteper ordinary share (iii) Weightedaverage cost of capital basedon market vatue. Calculationsmay be restricted two to decimal places. (14 marks) (b) Rani has investedin a share is .wh-ose.dividend expected to grow at 1S% tors years and thereafterat 5,"" til.tite ot tn" iiJiut vatue of the share, if current dividend and< 4 inr""tot, ,uqriiJiiui"' "orp"ny.' is

ir i"rur, ," az.

(6 marks) Answer 2(aXi)

Gearing = ratio
PriorchargeCapjtal

LongTerm Capitat nevenue r

7 Adntav^

G e a r i n g a t r o o r t h e e x i s t i n g a llat r f c l

structure= =

{ 16ff;; 0.275

lf expansion programme fundedby issuingordinaryshares 44n :o- o.22 i l obo ratn.1 qoo rakh ,
lf either preferenceshares or debentures are used to finance { 4 4 0 l a k h+ 4 0 0 t a k h { 1 6 O Oa k h- R s . q 0 Oa k h t f

{ 4 4 0t a k h s

=ffi=o.oz

Answer 2(a)(ii)

PP-FTFt/-June201l

tablegivesprofitavailable ordinary for sharesundereachcapitaj .,rr"1lr""tl,,o*,nn

Particulars Existing Capttal Strycture

lssue4OO lakh lssue 400 lakh OrdinaryShares 10o/o preterence

(7)
Profit belore interestand tax less Debenture rnleresl Taxableprofit Less Tax 35%

(<)
2,80,00,000 s5,20,000 2,44,80,000 85,68,000 I,59,12,000
Nil 1, 5 9 , 1 2 , 0 0 0 14,00,00,000 0.113

shares

r{/
2.80,00,000 35.20,000 2,44,80,000 85,68,000 1,59,12,000 40,00,000

lssue < 400 lakh ef g% debentures

(<)
2,80,00,000 67,20,)ao 2.12,80,000 74,4a.ao1 1,38,32,000

2,00,00.000 35.20.000 1,64,80,000 57,68,000 1, 4 7 1 2 , 0 0 0 ,

Lss Prelerence Shares dividend

Nil

Profit available for orornaryshares 1,07,12,00a No. of ordinaryshares 10,00,00,000 Protitper sh.re 0.107

1 , 1 9 , 1 2 , 0 0 0 1,38.32,000 10.00,00,000 10,00.00,000 0.119 0.138

Answer 2(aXiii)
Weightedaveragecost of capital based on MarketValue The marketvalueof IndigoLtd. Existing capitaljs : % in capital structure

l,4arket value Ordlnary of shares ,00,000,000 (t @ { 5.40 dividend) (ex pershare

D e b e n t u r e@ 4 4 , 0 0 0 , 0 0+ F s . t o 0 s 0 @ { 110

540,000,000 484,00,000 588,400,000

91 .77 8.23 100.00

94.19 5.81

lf additional sharesare issuedthrschangeto

Ordinary shares (140,000,000 ? 5.60) @ Debentures44,000,000+ 100@ {1tO @ {

lf preferential sharesare jssued

784,000,000 48400000 &t2400000

100
86.05 7.18 6.77

Ordinary shares (1,00,000,000 5.80 @T Debentures44,000,000+ 100@ < 110 @ { Preference Shares (40,000,000t 1.14) @

580000000 48400000 45600000 674000000

100

PP-FTFM-June 1 201 "/" in capital

STTUCTUTE

lf additional debentures issued: are (1 Ordinary shares ,00,000,000{ 6.00) @ Debentures +{ 84,000,000 100@ {108 600,000,000 90720000 690720000
Cost ol each element = O r d i n a rS h a r e s : r = g * g y
Ya
.l/1t ^\

86.87 13.13

100.00

Where d g

= =

dividend growthrate priceof the r' lare

Po =

Preference Shares= d/P" Debenlures=/ Po i Inserting valuesrelating present to capitalstructure (i) lf thereis no expansion = O r d i n a rs h a r e s y 0 -?0 1 - - . 2 s .(+ O0 . 0 2 5 ) 0 . 0 2 5 +

=
=

0.0:17'0.025
(J.i),-.:. 1C0

Debentures
= A.C'

-i 10

= T h e W A C C= ( 9 1. 7 7 %x C . C 6 3+ ( 8 . 2 3 % 0 . 0 7 )= 5 . 7 8 + 0 . 5 8 6 . 3 6 % ) x ( i i ) l f e x p a n s i o ns t h r o u g hs s u eo f r i g h t s h a r e s i s i

Forrights issue 0 5 = Ordinary shares 0 . 2 ( r+ 0 . 0 3 ) +0 . 0 3 5 =

{ 5,60

0.07

Debentures

gz".l1!! = 0.07
r 110

= WACC 94.19x 0 . 0 7+ 5 . 8 1x 0 . 0 7= 6 . 5 9+ . 4 1 = 7 7 "

Therefore WACC is 7%

:::::

::::

: :ll

:::l

ll

- -

7 (iii) lf expansion through is issue prelerence ol shares - o-20(1- o 04) ordinaryshares r 0.04= 0 08 < ).80 Costof capital Debentures ot unchanged 0.07 Preference shares 1.!1o'10.0 =nno 7 1 1 A

pp-FTFM_June 2011

W A C C= ( 8 6 . 0 5 % 0 . 0 8 )+ ( 7 . 1 8 % 0 . 0 7 )+ ( 6 . 7 7 % x x x 0 . 0 9 )= 7 . 9 3 % lf debentures issued are

ordinaryshares g?+*q# =

+0.05= ooe

8%x{100 _ ^^{ 108 = WACC (86.87% 0.09) (i3.13%x 0.07) x + =8.35% Answer 2(b)
Calculationof present value of dividend at 15% Year for 5 years

Dividend
D,= Do(1+g)' 4(1+.15), 4(1+.15), 4(1+.15)3 4(1+.11la 4(1+.5)5 1

pVF@6%

presi;eiiaG

1 2 3 4 5

4.6000 5.2900 6.0835 6.9960 B.O4S4

0.9434 0.g900 0.8396 0.7921 0.7473

4.3378 4.7081 5.1101 5.5408 6.0099 25.7067

31 .0149

Total dividendsof < 31.01 are expected jn the next 5 years, whrch is NpV of < 25.70 @ 6%. The valueof equityshareat the end of the 6th year Dividend 6'h lor year = D (1 + q ) = 8 . 0 4 5 4 1 + 0 . 0 5= 8 . 4 4 2 6 ( ) P , = D u ( k " - 9 )= 8 . 4 a 7 6 ( 0 . 0 6 0 . 0 5 )= * / < A44.76 :

2011 PP-FTFM-June So the sharePriceis { 844 76

= PresentValueof this @ 6% =.844'76x 7473 T 631 28 price valueol expected valueof dividend+ present Valueof share= present = .28 25.71+ 63'1 = { 656 99 = t 657

Question 3 of^textiles lt has a current (a) Peacock Ltd has beenengaged in manu.facturing is 75% of salesand bad debts sa/es of < 3OArn per ainJnl The costot sales comprises87o/ovariable costs and 20o/o of are 1/" ot sales The "ut"" "i"f is 12%' The company fixed cost,while the company's required rate of.return is now consideringincreasing i0 currently allows customters days' credn' but days' credit in order to attract more custoners thisto 60 policy will increase sales by 157"' It has been estimatedthat this change in ly. to qy". tt is expected that the policy while bad debts wi increasefrorh creditorsand stock level' chanqewilt not resunn any increasein tixed costs'

policy? proposed Ltd. Peacock introduce Should Ltd to is information related Evergreen : (b) The tollowing Unit cost Ordercost cost carrving InventorY order cost(stockout cost) Back
Annualdemand

(10marks)

< 200 < 320 <40

< 20 2,000units

: the to Youare required compute following costorderquantitY (i) Minimum (ii) (iii) (iv) (v) 3(a) Answer = of Level Sales t 30 Lakh Current will of NewLevel Sales be x 1.15={ 34,50,000 30,00,000 = Costs 80% ' Variable 75%= 60"/'of sales costsare807' ol Costof Sdles'x Variable = lrom Contribution Sales 40%of Sales orders Timebetween of number backorders Minimum level inventory Maximum annualcost' O'/erull

(2 markseach)

PP_FTFM_JUne 1 201

Proposed Investment debtors ln 34,50,000x 60/365 Current investment debtors in 30,0O,OOO x 30/365 Increase investment debtors in in lncrease contribution15%x 30,00,000 in = x 4 0 %. . . . . . . . . . . . . . . . . . . . . . . .(:A.). . . . . . . . Newlevel baddebts 34,50,0004% = of x Current level baddebts 30,00,000 1% = of x Increase baddebts in Additional financing = costs 3,20,54g1Z%....(B) x Saving introducing by change poticy _ B) in (A 1,38,000 30,000 (-)1,08,000 (-)38,466

5,67,123 2,46,575 3,20,U8 1,80,000

1,46,466 33,534

Thechange financing in policy financially is acceptable although savings not are verysubstantial Noles:Investment Debtors beentakenat Selljng in price. has Answer 3(b) Here : A = Annual = demand 2000 units B = BackOrderCost= 1 29 C = Inventory Carrying Cost= { 40 D = OrderCost= Rs.320 (i) i/inimum costorder quantity

= =

j2 x 2000x 320(2040) = V32000x3 40 l n v56ooo = 309.83 310Units oR

(iD Timebetween order :

[4inimum Order Cost Quantitv = 55 Q/A= 310/2000 0.1 Annual Demand 0.155 year 0.1 x 12= 1.86months or 55

PP FTFM-June 2011

10

(iij) [,4inimum number back of orders: Letbackorder maybe = S S = QC / B + C = 310 x 40 I ZO+ 40 = 12400160 206.67 202units = or (iv) lvlaximum inventory level: e-S = 310-207 103units = (v) Overall annuaj cost: purchase cost = 2000units@ { 200 = 2000 x 200= { 4,00,000 Alternative solution Purchase cost { 200x 2000 Order Cost2000/310 320 x Carrying 103x 40 / 2 cost Total
Question 4 Distinguishbetween any four of the folowing : (i) 'Currentaccount' and 'capitalaccount,in balance of payment. (ii) 'Foreigndirect investment'and ,portfolioinvestment'. (iii) 'Ask price' and 'bid Drice'. (iv) 'Horizontalcapital structure'and 'vefticalcapital structure. (v) 'lnvestment'and 'speculation'. 6 marks each) Answer 4(i) The currentaccountof the BOP comprisestrade in goods and services. In other words,the currentaccountbalance takesintoaccounlexports, imports, and net foreign rneome from unilateral transfers. The capitalaccountof the BOp, on the other hand, takesintoaccountcross-border flowof fundsthatare associated withfinancial other or asselsin the tradingcountries.For example, directand portlolio the inveslments made by loreignjnvestors, lndia,are capturedby the capjtalaccountbalanceof the BOp. in The capital account alsoencompasses foreign investments Indian of companies, loreign a i da n d b a n kd e p o s i t s f N o n - r e s i d e nn d i a n sN F l ) . ( o It Answer 4(ii) Foreign directinvestmenl meansinvestment non-resident by entity/person resldent o u t s i d e n d i a n t h e c a p i t ao l t h e I n d i a n o m p a n y n d e rs c h e d u l e o f F E I M T r a n s f eo r I i l c u ( r l l s s u eo f S e c u r i t i eb y a p e r s o n e s i d e nO u t s i d en d i a ) e g u l a t i o n s0 0 0 . s R t l R 2 P o r t f o l i o v e s t m e n t a i n l y n c l u d e s l l s ' i n v e s t m e n t , n d sr . a i s etd r o u g h D R s / in m i F fu h G A D F s b y I n d i a n o m p a n i e s n d t h r o u g h f f s h o r eu n d s .D a t ao n i n v e s t m e n l b r o a d , c a o f a hitherto reported, have been splitintoequitycapitaland poffolio Invesrmeni. A n s w e r4 ( i i i ) An ask price is the rate at which the market maker is ready to sell a particular p c u r r e n c y a i r .T h i s i s t h e p r i c et h a t a t r a d e ri s f e a d vt o r e c e i v ei n o r d e rt o s e l l t h e

{ {

4,00,000 2064.51 2060

< 404124.51

A bid priceis the rateut ,lu.ryrker makeris prepared buy a specjfic to currency in the Forex 1T"_l pair trading market. Thisis tnepriceiirai rrader paywhen a wi, buying currency. a Answer 4(iv) In,aHorizontal capital structure, firmhaszerodebtcomponent the the in structure mix.Thestructure quite is stabre. Expansion tn" rira iuk". il a taterar or manner, i.e. through equiry retained or earning Theabsence oeoires-uiis rack onry. of rnlre offinanciar leverage. Probability disturbance thestructure remote. of of is Ina vertlcalcapital struclure, base thestructure formeo a small the of . is oy amount orequrty share capitar. base This serves thefoundation which super as on the structure of preference sharecapital and is The in"r"r"nt"i uoOition the capital in _debt built. strucrure armost is entirery theformof debt. in oruntrr or liu]neo earnings rowand is the dividend pay-out ratio ouite is htgh. sucha .tru",ure,lf,lco.t of equity ln capital is usually higher thanthecostof debt. ihe highcompone"i;i;;t ," thecapitar structure increases financiar ofthefirm ren-ders stru"t the risk and the i" unli"or". firm, rn" because of thereratively resser component equity of capitar, urrn"iu# io-hostrre takeovers. " Answer 4(v) may as act . lnvestr,lent be defined a conscious onthepartof a person involves that deployment money securities of in lssued rirms/companies a viewto obtain by wrth a target rateol return overa specified period time. oi Speculation involves aiso deploymentfunds it is notbacked of but analysis prosandcons.Mostyit is a spuror tne momeniaitivity bya conscious of thatis promoted andsupported harf-baked by information rumours. and specutative oeptoymentfunds of isgenerally prevarentthesecondary in equity market. wnii"tii""t. p""pr"to specuration isa rate return is abnormaly of that higneitnan prevuri"g the ;"rk"t .ut"r.Thebarancing of rskandreturn nevertheress operates speculative in activity andassuchtherisk arso js element speculation veryhign. in Question 5 (a) ExcerLtd. is considering investingin a riskyproject whichwourd added an be to existing poftfolioof investment projects,aiso'subject risk.lt envisages to six possiblestatesof the economyfor whichit has estimated probabilities and outcome follows as : probability Stateof Retum on Return on Economy pofttotio proposed Existing proiects 1 0.1 12% 8% 2 0.2 14% 10% 3 0.2 15% 12% 4 0.3 16% 10% 5 o.t 18% 14% 0.1 20% 6%

pp-FTFM_June 2011 currency. The bid/ask combjnation comprises quotation, a whichrs basedon a floatjng exchangerate.The quotation liststhe bid pri"" fj*, tn""',n"'fst price.

'I I

PP-FTFM-June t 201 Youare requiredto determinewhetherthe project shouldbe accepted. The riskfree rate of return is 6/". (10 marks) (b) The fo owing deta s of Atpha Ltd. for theyear ended 2010 are turnished :

Financial leverage Operating leverage 3:1 lnterest charges annum per < 20 lakh Corproate rate tax 40% Variable costas percentage sales of 60% Prepare income statement thecompany. of @ marks) (c) Mohanhas a portforio 6 securities, ot eachwitha market varue < 10,000. ot Thecurrent beta( I ) ol thepaftfotio 1.30 and ot the risKast is security 1.80. is B Mohanwishes reducehispotlfolio g to 1.15by se ing the to riskiest security andreplacing withanother it security a lower g. Whatmust the of the with be F replacement security? 14 ma/1Ks) Answer 5(a)
'Date of return
.l

Probability

RxPt 12 i.1.2) 14 (2.81

R ix P t
8 (.8) 10

RptRpt (a) -3.6 -1.6 -0.6

FlptRipt (b) - 2.2 -0.2 +1.8 -0.2 +3.8 -4.2

dp
1.296 .512

(a)(b)p +.792 +0.064

(2.o) (2.41 10 (3.0) 14 ( 1. 4 ) 06 (0.6) Rpt -10.2

(s.0)
.3
.1 .1

. o 7 2 ( " ). 2 1 6 .048 l-) .024 .576 0.912

(4.8) 18 (1.8) 20 (2.0) 15.6 Rpt-15 . 6

+ O.4 + 2.4 + 4-4

r . 9 3 6 ( - ) 18 4 8 . 4.440 +1.768 - 2.088

-.32 B =
Covarpi = (-1.32/4.44 = vaflarcep

(1.072

Flequ rateof return red is Rft+ B Rp = 6 +.(.072x 9.6)lwhere = Rpt_ Rr 15.6_ Rp ; 6.0= 9.61 = 6-.691 5.309 = Theexpected of return .l0.2?", rate is theretore project the should accepted. be

I J

Answer5(b)
Income Statementof Alpha Lld. (For Pafticulars Sales Less : Variable cost (60% ot sales) Conkibution (WN-2) Less: Fixedcost excludjng interest

PP-FTFM-June .1 201 the year ended 2010)

(< ln lakhs) 300 180 120 80 40 20 20 I

EBrT (wN-1) Less: Interest Prof Betore it Tax Less: Corporate @ 4}ok tax Profit AfterTax Workingnotes (1) Financial leverage =2:1 Flnancial leverage EBIT/pBT = EBIT 2 EBIT tnr 1 EB|T 20 1 EBIT= 2(EBIT-20) EBIT=2EB|T-40 2EBIT*EBIT=40 EBIT=149;2L5. (2) Operating leverage 3:1 = operating leveraoe conlribution= 3 - = EBtr= Contribution = 3/1 / 40 contributjon 3 x 40 = < 120Lakhs = (3) Variable js 600;of sates cost Contributioni 00 _ 60 = 40%of sales = Contribution 120lakhs = Hence = sales 100/40 12Q x Sates=< 300lakhs

= _lqr_=3 _

PP-FTFl,4-June 1 201 Answer 5(c)

14

= Betaof a portfolio weighted average betaof theconstituent = securities t WiBi Thecurrent = betaof Mohan's Portfolio 1.30 = l\4arket valueol thetotalportfolio < 10,000 6 = < 60,000 x Weight eachsecurity theportfolio < 10,000/60,000 = of in = 1/6 = Sumof thebetas sixsecurities1.30 6 = 7.80 of x Thebetaof theportfolio replacement security=.j 5 after of 1 = Sumof the newbetas sixsecurities 1.i 5 x 6 = 6.90 of Since riskiest the security a betaof 1.80is replaced, means. with it Sumof beta existing = of securitiesbeta replacement of security newB ofsecurities 7.80-1.80+X=6.90 6+X=6.90 X=6.90-6.0=0.90 = Thus, betaof the replacement the security 0.90 Question 6 Following information extracted is from the books of PerfumeLtd. at the end of year financial 2010-1 : 1 Net sa/es Debt-assets ratio Debtors turnover ratiobasedon netsales lnventory turnover ratio Fixedassets turnover ratio Netprofitmargin profitmargin Gross Return investment on < 20,00,000 0.6 2.0 0.80 5% 25% 2%

BalanceSheetas at 31stMarch,2011 Liabilities Equity Longlerm debts Shoftlerm debts

2

Assels Net fixed assets

? 10,00,000

lnventory Debtors Cash

? ? ?
?

? .'..-.''.

15 carcurate ,

PP-FTFM-J,.e 1 201

(i) Theworking capital availabte withthecompany 3l st March,201 on 1. (ii) ltspermissible bankborrowings per secondmethodrecommended the as by Tandon Committee. (20 marks) Answer 6 Working Notes (a) Fixed Assets Fixed = Assets Sales/Fixed Assets Turnover Batio = < 20,00,000/0.80 = - 25,00,000 (b) GrossProlit GrossProf l,4argin Grossprofjt netsalex 100 = it / 25%= Gross itl< 20,00,000 Prof = GrossProfit 25"kot . 20,00,000 < 5,00,000 = (c) tnventory = lnventory Costot Sales/lnventory Turnover Ratio prolit Inventory = Sales Rross / Turnover Ratio = < 20,00,000- 5,00,000/i.25 = lnventory { 12,00,000 (d) Debtors = Debtors NetSales/Debtors Turnover Batio based NetSales on = < 20,00,000/2.0 = < 10,00,000 (e) Net Protit NetProfit = Margin Netprofit NetSales .100 / x = 5oo nelprofiu< 20,00,000 = Netprofit 5%of Rs.20,00,000{ 1,00,000 = (f) lnvestment ReturnInvestment NetProf / Investment100 = it x 2%= - 1,00,000 / Investment =100/2x{ 1,00,000= 50,00,000 lnvestment < (g) Totaldebt DebtAssets = Ratio Debts TotalAssets / (lnvestments) = debts/<50,00,000 0.6 = Debts 0.6x < 50,00,000 { 30,00,000 = (nt Capitat (Equity) = Capital TotalAssets TotalDebts = < 50,00,000- 30,00,000= 20,00,000 < <

PP-FTFM-June I 201 16 (i) Shofttermdebts < 10,00,000 0 Longtermdebts _ LongTermDebts TotalDebts Short = TermDebts = < 30,00,000-< 10,00,000= 20,00,000 { Nowon thebasis above of lnformation, canprepare balance we the sheet at 31st as March 1 as under 201 : Balance sheetas at March 31st.201 l Liabilities Equity Long termdebts Short termdebts t Assets 20,00,000 12.00,000 10,00,000 3,00,000 50,00,000 ::_ 20,00,000Netfixedassets 20.00.000Inventory 10,00,000Debtors (batancing Cash figure) 50,00,000 (il Working capital on March31, 2011 as = Working capital current assets current liabilities = (tnventorydebtors cash) shorttermdebts + + = _ < 12,00,000+ 10,00,000+ 3,00,000 - 1O,OO,O00 = < 15,00,000 (iil P^ermissible borrowings per second bank as method recommended Tondon by Committee
2"d method

= = = = Question 7

0.75(current assets)-(current liabilities) 0.75 < 25,00,000- 10,00,000 x < < 18,75,000-< 10,00,000 { 8,75,000

Writenotes on any four ol the following: (i) Sweatequity shares (ii) Benefits depository ot system (iii) Operating cycte (iv) Risksin forexmarket (v) lnterestrateparity.
(5 marks each)

17

Answer 7(i) Sweat EquityShares

PP-FTFM-June I 201

Sweat equity shares b-e can issued thecompany employees by to or directors a at drscount torconsideration or otl Sweat equlty shares shares are givento employees company the ot lor efforts & worktheyput in. Theseshar
he/sheis a part ownerin the company.

rishts ;aiJr;ilff;::'Jffi,i:ldiJ;:l'ji; :l#r'o*- 'ar,s"uairJrJ in tire

r',r",r,etuiru*rne;;;#;:;fi j:li^:l .:J:T":l1:,iil3',:f ff lrX*.rHj:i

Sweat equity share js a instrumentpermitted to be issued by speclfiedIndjan companies, under section 79A of companiesnct, rgio. n'JJoroinq this sectiona to publiccompanymay issuesweat equitysharesof a ot arreadyissuedif the following conditions f ulfilted: are "t"a. "iur"a The issueof sweatequity^share-is authorjsed a specialresolution by passedby the companyin the generalmeeting. The resolution specifies number shares, the of current market price, consideration tf any and the classor classesof directors o|. rnom such equity sharesare to be issued "rnffof""",o Not lessthan one year has elapsedat the date of the issue,sincethe date on w h i c ht h e c o m p a n y a s e n t i | e dt o c o m m e n c e w Orain".a. The sweat equity sharesof a companywhose equityshares are ristedon a recognjsed stockexchange issuedin accordance are wlththe regulations made by SEBI in this regard.

All the limitations, restrictions and provisionsrelatingto equrtyshares are also applicabre such sweatequitysharesissued to underthe new sectron79A. Answer 7(ii) Benefitsof depository system In the depository system,the ownership and transferof secuntres takes place by meansof electronic book enlries.At the outset,this systemriOstne capitafmarketo, retated of The pro"ij".* numerous and ll:, qi:g"*n eift s , to handting paper. drrect r n d r r e c te b like: "v"tu# Elimination bad deliveries ot Eliminatlon all risks associated of with physicalcertitjcates lmmediate transfer and registration securities of Fasterdisbursemenl non cash corporate of benefitslike rights,bonus,etc. Reduction brokerage manybrokers trading in by for in demateriarised securities Reduction handling hugevolumesof paper in of and ! erioo,c statusreports

PP FTFM-June 011 2 -

18

Elimination probrems of rerated changeof addressof investor, to transmission, etc.

Elimination problemsrelatedto selllngsecurities behalfof a minor. of on Answer 7(iii) OperatingCycle The operating cycle is the lengthof time betweenthe company.soultay on raw materials, wages and other expenditures and the inirowor cash from the s;re of the goods rna manuracturing business, operating cycreis the average timethatraw materiar remarns stock less the periodol credittakenfrom suppliers, In plus the time taken for p r o d u c i ntg eg o o d s , l u st h et i m et h eg o o d sr e m a i nn f i ni s h e di n v e n t o r y ,l u s h p i p t h et i m e taken by customersto pay for the goods. Operatingcycle concepl ts rmoonant tor management cashandmanagement working of of capital because longer operalrng the the cycle the more financialresources the companyneeds.Therefore, managemen-t the has to remaincautiousthat the operating cycleshouldnot becomeroo tonq. Answer 7(iv) Risks in forex market operations the forexmarketare exposed a numberof risks.Theserisksare as in to under: (a) creditriskarisingout of rending a foreignborrower to whosecreditratingis not knownf or certainly (b) cunency riskof tradingin a currencywhosestability and strengthis knownto fluctuaie ( c ) c o u n t r y i s ki n v o r v e id d e a r i n gn t h ec u r r e n c y f a c o u n t r y h o s ep o r i t i c a rn d r n i o w a economicstability uncertain is (d) solvencyriskdue to mismatch between currentassetsand liabilities dealers ot and resultant defaultin meeting forwardcommitments. Answer 7(v) ,,.. Interest Rate Parity: According interest to rateparilyprinclple, forwardpremium the (or discount) currencyof a countryvis-a-vis currencyof anothercountrywiI on the be exactlyoflsetby the interest ratediflerential between countries. the The currencv the of countrywith lower interestrate is quotedat a forwardpremiumand vrce-versi.Two assumption centralto interestratesparityare capitalmobility perfectsubstitutability & ot domestic and foreign assets. exampre, lpR condition For the implies thatthe expected relurnon dollarasserswillequaltheexpected returnon foreigncurrencyassets,due to an equilibrium foreignexchange in marketresurting from changesin the exchangerate between two countries.

19

PP-FTF[/-June2011

F f r *; i $3 F: ls PS EI ' f H HF F > r: ; r$ :$ iH3 s s

E F :E : E R E g g gF gs g E s b n i E g S : : g g : H s 5 H 5 : sEE i5T5s :F:EgR g P ;gs g,3 5 g g

{ f F p E* : 5 r 3 9 BE 3 3 bs B5p s s s : g 3 3 : : g 3 5 : ; s B

= , n g g : g g s s s s :3 : g : : : eg E g 5

i -r = cr i $ cgj 6g; ;$i JH; : gi : $ o$o F $ jR ; F ! E: E E s e R d . c . ! ; ; H a 5 - s s s H d : H H S s s E * K g g g 8 $ E = E B : s : : I E I E S . d ; : j ; : s ; : : H

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z o o o d d ; : j < j ; : 2 t r l g s o

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n ' "3 :S5 F F g g p s f f iE F H* E ; a s s N X ; 555F$5- q 555335 . 3 3 3 3

: o

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; " ;

" , 5 3 5 s s s I 5 g 3 gg $g 3 55 5 5 I 5

Contd........

e PP FTFM-Jun2011

20

i - g ; : s F : E s : i s $ $ $ $gs F s $*
F = g F x $ s F g g H E $ S i l g q
= e s : : e s * e g ; l c $ E3 $ : $ ; g I "s,n g E ' r F p ;: :e g 3 f i F3$ H g : g f i $3
z

fr-$gFe$Fxs:gfi*;H5 fi=efrpp:x3:*gS;$$E:

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t!

i y

h p B R t s i

: T " $ $ ?E eE g F $e; f: t: E H * f i H e F g T = E s :H g B F E x n fFi:f $ F x : i Ei X

i"ritiFgxiHfrlfffiil:ili
f t- . $ f ; 3 S 8 $ F F F G i q s B q F E ! e E s

5 5 5 5 : : : I E P -s _qE E I

g: : :

! - c g E g g E E s 3 E g 5 E E g E E
.. $ 6 f " ; -d E : 1 " $ u " Er *E E $ I N $ S $ $

CORPORATE RESTRUCTURING INSOLVENCY AND

Time allowed : 3 hours Maximum marks: 100 NOTE: 4// references to sectionsrelate to the Companies Act, 1956 unless stated otherwise. PART A (Answer euestion No.1 which is comDulsorv and any three of the resttrom thispart) Question 1 (a) Big Ltd. prepared a scheme ol amalgamationand arrangementwith Small Ltd. and Little Ltd. and the scheme has gone through the required formaritiesand court approved the scheme, in which the swap ratio was provided as under : (i) The transferot Company No.1 - Small Ltd. : The shareholdersof Smau Ltd. willget one equity share of tl0 each of Big Ltd.for every 2 sharesfully paid-up of Sma Ltd. (ii) The transferorCompany No.2- LittleLtd. : The shareholders Litfle Ltd. ot willget one equity shareof ?10each tu ),paid_upfor every S equity shares fu y paid-up of Little Ltd. There were no other types of shares in the companieson the record date fixed for swap ratio. The capital structure of the transfereecompany (amalgamatedcompany) and the transferorcompanies(amalgamating companies)was as under on appointed date, and there was no change in this regard upto date as Big Ltd. 10,00,000 Small Ltd. 8,00,000 Lit e Ltd. 7,00,000

aforesaid: Pafticulars Equitysharecapital(Nos.) Fullypaid-upequity share @ 0 each(4 Reserves surplus (fl and Total(?) lnvestments Big Ltd. : ot

1 80,00,000 70,00,000 ,00,00,000 50,00,000 70,00,000 50,00,000 1,50,00,000 1,50,00,0001,20,00,000 ::_-:=

Equity sharesot SmallLtd.of fl0 eachfu y paid-upin SmattLtd (Nos.) Equity shares 3,00,000 Nominal value(fl 30,00,000 Paid-upvalue( Q 30,00,000 Equityshares LittleLtd.of A0 eachlu y paid-upin Lit e Ltd. of Equity shares(Nos.) 2,00,000 Nominal value(Q 20,00,000 Paid-up value(4 20,00,000 21

P P C R I - J u n e 0 11 2 As a Company Secretary and CFO ol Big Ltd.(the transferee company), how ouldyou deal with (i) the issues lor eftecting the allotment of equity sharesof Big Ltd. for whichshareholders, approvalwasreceivedunder section g1ft i). . (3 marks) (ii) the number of equity sharesol Big Ltd.of ?1 0 each fulty paid_upto be Bsued to the shareholdersof SmaltLtd. and Littte Lt(l (6 marks) And also state that the total numberof issuedequity sharesof Big Ltd.after such allotment. (1 mark) (b) state whetherthe folowing statements true are or farse citingbriefry rerevant provisiansot the law . (i) A company seeking amalgamation with another company, passed a resotutionundersection 391(2),as per directionof the courl and did not file the same with the Registrar Companiesunder section192,on of the plea that it is neither an ordinary nor a special resolutionbut an extraordinary resolution. (ii) A companycalleda meetingof membersof the companyunder direction of the coutl for amalgamationwith another company and excluded the proxies for the purpose of counting quorum. (iii) The date of agreementmadeby the merchantbankerwiththe acouireris treatedas,deemeddate of offer,for thepurpose of acquisitionof shares and/or controlin the targetcompany. (iv) The order sanctioningthe scheme of amalgamation madebv the court shoutdbe filed with the Begistrarof Companies.lf theorde; is notlited with the Registrarof Companies,it will not have any effect. (v) Every notice of any meetingcalled as per orders of courl under section 391 shall not include explanatorystatement. (2 markseach) (c) Explain the circumstances where reduction of share capitar is done without confirmation the cour|. by (S marks) Answer 1(a)(i) After receiving orderfrom the Hon'bleCourt,a copy of the coun orderbe the filed with ROC to makethe mergerelfectivein the eye ot law. A B o a r dR e s o l u t i otn b e p a s s e do r a l l o t m e no f e q u i t y h a r e s f R s . 1 0e a c hf u l l y o l t s o pardup to the sharehorders the transferor of companies and firethe necessary e-rorms ( e - ' o r r 2 ) w j t hR e g i s t r a rl C o m p a n i e s . r o The investment the smalr Ltd.and Lifle Ltd.to be writtenoff and cancefled in from t h e b o o k so f B i q L t d .

Answer (aXii) 1

P P - C F l i u n e2 0 i 1

Thenumber equity of shares be allotted theshareholders Small to to of Ltd. Paid equity up shares (Nos.) 8,00,000 Less: Cross holding (between transferor and {ransleree company liable be cancelled) to Netnumber shares be swapped of to Swap ratio Newshares BigLtd.to be allotted of
The numberof equjtysharesto be issuedto the No. of paidequityshares Less: Crossholdingbetween rransreror the and transferee company Net Sharesto be swapped SwapRatio Net shareto be allotted

3,00,000 5,00,000

2,50,000 nos.
shareholders LlnteLtd. of

LittleLtd. 7,00,000 2,00,000 5,OO,O0O 1:5 1,00,000 /Vos.

Big Ltd.No. ot equitysharesbeforemerger Allotted shareholder SmallLro. to of Allotted shareholder LitfleLtd. to of Tota,No. ol issuedshares

Afterthe allotment, totalnumberof issuedequity the sharesstandsas under:

10,00,000 2,50,000 1,00,000 13,50.000

Answer 1(b) (i) True. fulr A bench thepunjab Haryana co .ulinHindLever of and High chemicars Limited Anothel and 58S [2005] CL211(punj. Har,) & hetd thetanguage that oi Section 391(2) the Act is totally of unambigror" unJ u-pr",n reading this of provision clearly jn shows themajority riumber whtch compromise that by a or arrangementapproved is should represent threeJourth value thecreditors/ in of 'present shareholders are who and votinganclnot of the totatvalue sharehorderscreditors thecompany. is neither orornary of the or of ihis an resorution nora specrar resorution thepurview section of theAci.this is within of 1gg an extraordinary resorution. copyof this resorution A neednot be fired withthe RegistrarCompanies of under Section 192. ':l False. proxies to be counted thepurpose are lor of quorum tne meeting ror called under direction theCourt amalgamation anorner of for with comoanv.

PP-CRf*June 1 201

24

In termsof Section 391,the resolution to be approved a majority has by ol members representing threejourths value thecreditors class creditors in ot or of or members class members thecasemaybe present voting as or of and either Inperson by proxy. or (iii) False. of{er (SAST) The under Begulations, is deem6d have to SEBI 1997 been madeon lhe dateof publication the publicannouncement any of the of in newsoaoers. (iv) True.As perSection (3)oJ Companies 1956, order the Act, the made the by 391 (2) courtunder Sub-section of Section should filedwiththeRegistrar 391 be ol lf the is with Registrar, amalgamation the Companies. order notfiled the ordered by theCourt shallnothaveanyeffect. (v) False. the 393('1)of Companies 1956laysdownthatwhere Act, a Section meeting creditors membersor any class of them is calledunder or of Section 391: (a) withevery notice calling meeting the which sent a creditor a member, is to or a setting theterms thecompromise forth of there shall sent be also statement its stating material any and and orarrangement explainingeffects inparticular, managing director manager the company, or of interests the directors, ol of as or or whether their in capaclty such asmembers creditors thecompany or of and the eflecton those interests, the compromise or otherwise fromthe eftect the like on arrangement, and in solaras, it is difterent if, persons; and interests other of there (b) in everynotice calling meeting the whichis givenby advertisement, atoresaid a notification or ot sucha statement as shallbe included either place which themanner which members entitled to in creditors or the at and as aforesaid. ol the may copies sucha statemenl attend meeting obtain Answer 1(c) Reduction sharecapital withoutsanction lhe Court of of to of capital whereno but Thefollowing caseswhichamount reduction share are confirmation theCourtis necessary: by (a\ Surrender shares "Surrender shares" of means surrender shares the ol of shares holder shares. Where to by of already issued thecompany theregistered whether wayof settlement a dispute ol or by aresurrendered thecompany, to in of as it for anyotherreason, willhavethe sameeffect a transfer lavour the to of company amounl a reduclion capital. and (b) Forleiture shares-A company if authorised itsarticles, lorfeit shares may by of ol will conf fornon-paymentcalls thesame notrequire irmation theCourt, of and whenit is re-issued. (c\ Diminution capital Wherethe company cancels shares whichhavenot of 94(1)(3)]. taken agreed betakenbyanyperson or to been lsection preference (d) Redemption redeemable shares. of

se'ion 402. (f) Buy-back o*n,nu,.THo"j,?jff;"T;"r'nder of,,.

Question 2 (a) What thedifference ,compromise,and is ,arrangement,? between @) (5 marks) the pr:c:d:J:e to.r makins apptication l:1,,?:l ^!:,:fty to coutt under section39t for directionsto hotdmeetings or siareiliiJisrcreaitors.

25 (e) purchase shares a,",.nnjr"n",n".^ of of

PP-cRhJune 1 201

(S marks) (c) Whatfactorswillyou considerlor valuation shares merger/amalgamation of in ? (5 naks) Answer2(a) Ditference betweenCompromise anctArrangement

consoridation or ;i;,;,;-;.1:il:3::ffffiff il,,':Xi shil ?fiff :L$.T[i:iJ":i both.'compromise' presu'ooses.lhe existence oL"
company another by incrudino interference prefere;tial otherspeciar with ino rights attached shares formpirt of un urrung"r"ii to can pi"p"."i iri,nmembers. Answer2(b) Application HighCourtseeking to direction hold meetings to Rule6Zof theComoan (Court)_Rules, jes 1959 laysdowntharan application under Seclion 391(1)of Companies rhe Act.1O^S_o^t3r. #xing'd,re"tionfo, meelrng(s) creditors ii "rJ!, of and/or members anyclass fhemslialt Oyway"onvening or of oe ofJudge,s

brrangement,as under given ^^_tllTul,in gl le expression Section 390(b) the of uompanies 1956 Act, includc

,:::il:il::^,il:[::TT:]J],1ffi il"ff1,T::;,lihn"";"",*,:;,fl :TTtr

I:I:l]l!:

Jiprt""*ni"h it seeksto setre. ,1" is impried the,arransem"nt, in wrqer meaning than "rliJri'i.,

y,ii iJil:]f.:!i,'""J':l iiJl"l,ffi ;T#tT# llHili: gsg. il"J,"".,"fl iff""ffiJ# n,r"", in"urlio"",ii.".,pp"n I the appricarjon |ff:;!f
,""1ilK:]:..1""rn) ",
Answer2(c)

::":". #l!?::[:

'ffi jffilTl:,,:1;"J;1i;s,,."",;l ;rlT:',L',Jff :fi:",*l:;":ru;* :::Tff ,nder computsion orselr, any tobuy
anooitn-p'arties knowredse irave
Ari.vi6g s116",r"nsaction Dricerequjres that a valuebe placed

is a complicated aous,ness ure req,.iresolterminarionuture andintril l!"l3il,.",ii,ir? ofjts f ea,n,nn" oo,"nilji

Determining value a business the ot

on the companyfor at vatue in"iro"iie*t"a,reo, l-":1. l" ?r":*: ofarriving this I anays s ,.r'hrch takesintoaccount range tactors "r,orrJ i.JrOl"g ih" past,present. a of "ompr"h"n.iue

and

PP-CBl,June2011

26

mosr rmportany, the futureearnings and prospects the company,an analysisof its of mixof physical and jntangible assets, and the general economic and Industry conditions. The othersalientfactorsincruoe: (1) The stock exchangeprice of the shares of the two compantesbefore the commencement negotiations the announcement the bid. of or of (2) Dividends paidon the shares. (3) Relative growthprospects the two companies. of (4) In caseof equityshares, relative the gearing the sharesof the twocompanies. of a { ' g e a r i n g ' m e a nrs t i oo f t h e a m o u n to f r s s u e d r e f e r e n c s h a r ec a p i t a a n d p e r o e o e n t u r s t c | j k o t h e a m o u n o f i s s u e d r d l n a r y h a r ec a p i t a l . ) e t t o s ( 5 ) N e ta s s e t s f l h e t w o c o m p a n i e s . o (6) Votingstrength the merged(amargamated) in enterprise the sharehorders or of jes. the two compan (7) Past historyof the pricesof sharesol the two companies. l\4erger amalgamation and dealscan take a numberof monthsto comptete cjuring w h i c ht i m ev a l u a t i o nc a n f l u c t u a t e u b s t a n t i a l lH.e n c ep r o v i s i o nm u s t s s y s b e m a d et o protectagainstsuch swings. Question 3 (a) Sharad who is a promoterof Grow Good Ltd.holds20% ot paid-up sharecapital ot the company. The shares ot the company are listed on National Stock Exchange Ltd., Mumbai. Sharadwould liketo pledge his sharesfor obtaining Ioan. State the requirementsfor disctosureof pledged sharesunder the SEBI (Substantial Acquisitionof Sharesand Takeovers)lAmendment) Regulations, 2009. @ marks) 'escrow (b) Explain the provisionsrelatingto account' under the sEBl (substantial Acquisitionof Sharesand Takeovers)Regulations,1gg7. (7 marks) Answer 3(a) Sharadhas to complywjththe following requirements : Disclosureof pledged shares (BegutationgA) (1) A promoter everypersonforming or partof the promoter groupof any company rs lequiredto disclose detailsof sharesof thatcompanypledgedby hjm, if any, to that company,within7 workingdays from the date oi creatjonof pledgeon sharesof that companyheld by him. A promoter everypersonformingpartol the.promoter or groupof any cotnpany shall,within7 workingdays from the date of invocation pledgeon sharesot of thatcompanypledged him,informthe detailsof invocation such ptedge by of to that company.

27 PP-CBl-June2011 Compliance requirements Growgood by Ltd. (2) Thecompany shalldisclose information the received above(j.e.fromMr. as Sharad) altthe rc stock,exchanges, *f,ri"f,r if".n#s ol company ljsted, are jn with 7 working daysoftherec6ipt"" th"r"";, ;, l;;g;iy* quaner '" enc.ting March, June, September December anyveai']and of (a) aggregate number pledged of shares a promoter every of or person forminE parlof promoter group takentogether sha;;; wiih (b) aggregate total of pledged shares thepromoter every of or person torming pan or promoter groupalongwith shares the atready pledged during thai quarter suchpromoter persons by or exceeds one per cent.of total shareholding voting or rights ihe cornp.ny, of *f,,in"ueris lower.,, Answer 3(b) Escrow Account Regulation requires acquirer open 2g the to an escrow account a security as for pertormance hisobrigationsterms of in of thepubtic otter. ine amount be refunded wr, or_used timery irment theobrigations for furf of andforfeit"J lirJi not.ornpreted. is ir Th againsr frivotous takeover offers .""ri", " interest thepublic of :i#:[n"i*"*nt "ni Thevalue escrow of amount shall 25%,uptoFs.10O be crores and 1O% above Rs 100crores' theconsideration of payabre ,no"iil" pr"nro"iftr. casetheacquirer tn hasmade ofrer rhe subject a minimum to r"u"roi acqurre minimum 2o%thenhe hasl0provioe "."LiiJnJ""uio nu oo". notwantto of soz oiin" payabre theofferin cashin escrow accounl. acqrir".nu. ti" oiiion'orkeeping under "o-nio"r"tion differential The pricing if heso opts, shardeposit and he in theescrow a""olni with reference highest to price offered. theevent upwurOr"ui"ion oifer, In "rorn, of J, m" "urcurated theacquirer rssupposed enhance escrow to the value uptot OZot consiOJratr:on payable upon such The acquirer exercise optionof Iendering can the bankguarantee approved or securties escrow in account instead of Bankgr"";duL. to be executed by .cash. ::quirer favour merchant in of banker hasto bevaiid and utt"u.troi p"noo commencing ":': thedateof pubric announcement 20 daysafter " untir crosure tneoffer. ot simirarry, =::'oved securrties approprlate with margins to o" o"oorn"owiththe merchant :=-<erwith authority realizethe the to valuebf "16 such escro*uJ*rnt, Oy aule othenvise or a- : ' anydeficit occurs, rnerchant the banker sha,be tiaotel0 mar<e goodsuchdeficit. ':-3 :cquirer deposits cashwitha schedured u"nr,, aurhorize bank the lo a.: anyinstructrons bymerchant given banker "cquireinasio in rlip""i or?,o .3- arso r.4erchant ba-(e' s prohibited returning bankguu;nt""-oi!""urnies rrom the "."ount. a, the untir oblca:ors under offerhavet the

that quarter pio.ot", by su-cn oif","";;;r;ff. ,il:""illi":fl3:l*T]:?

to eitherruttorpart ti- eJ"ni-oi"oiiilrrir'""r in in rn orobrisations i"1,";:'::ff:?- "ccount,

'#J"[;T:Jffi jn;::l_ii::;;;i;";ffi ;;:"i"::Ti,i:'",i,?!.!:"_?ifl ".":JJ""; : w[n a bankat]east of totalconsideration 1% payable. Segf h"lO""n empowered

PP-CRl-June i 201 Question 4

2g

(a) Explain funding throughswaps stock stock or to merger.

(b) Draft a suitable Board resolution with respectto takeoverfor lhe tollowino : (i) otfer by offeror company:and ( ) authorisationto invest in the shares of investeecompany.

(5 marks)

(c) Sanction the schemeof amalgamation to canbe refused thecourl on the by groundthatthe transferee companydoesnothave sufficieni autnorised snii capital theappointed on date. Doyouagree? Give reasons. e marks) Answer4(a) Funding throughSwapsor Stockto StockMergers In stockswap mergers, stockjor-stock or mergers, holders the target the of company's stbckreceive .hrr:_.-:l the acqutrjng .ro"t . The majority of mergers during pastfewyears the "oi,p"ny;s havebeen stoci-for-siocI deats. merger A arbitrage speciallst selltheacqulring will company,s short, witipurcnasetong stock anO position a *Tpany, using the-same as thatof theproposed ratio transacrion. the : .:1:lllS"l (tf p!rchasing frrmis ofrering harf a shareof itsstockfor every!nale ot tnetarget mgr.ger arbitrageur set harf many wi, as shaies 6rinJiurcnasingirmas he or lejr.the f "omba;yl shebuysof thetargel compan!. As withafimergers, stock swapmergers mayinvorve event,sk.Inaddition the to event rj:l(s, stockswapmergers invotve risks associatedwith ftuctuationsthe l:T'al prices in stock of thetwocompanies. Thetermsof thedealinvolve,an exchange shares arepredicted theprices of and on of the twocompanies'stock therimeof ihe ar changes the in sharespricesof one or bothof the companies "";;;;;;il;rastic ;;; il"" dearto be reevaluated. Merger arbjtrageurs ";;;; mergers derive returns stock from swap ""rire when spread the or potential justifies perceived of thedeal,s return the risk dlin;. Answer 4(b)(i) Offerby OfferorCompany THATan offerbe made,to the persons _ BESOLVED who are the members o f . . . . . . . . . . . L.t.d a so n . . . . . . . . . . .f .o ra c q u i s i t i o n . .. .., ottolt.a t. . . . . - . " q u t y s h a r e s o f B s . J 0 l . _ -eachrepresentin9a.............7.otthe i s s u ec a p i t u r i r , " 1 . . . . . . . . . . . . . . . . . . . . . L r d . d oi RESOLVED FURTHER THATabovesaidoflershaltremain open p r i c e f B s .. . . . . . . . e.a c h . o . RESOLVED FURTHER THAT jf shares accepted be even such shares aggregate in arelessthantherimit mentioned abou"anoincase.i'ai"r oiiJL therimit, the company shallhavean option accept reject samein """""0 to or the consultation the with concerned authoritjes offer beaccepted and will according tfre to orOer which ln theyare received fullshareholdingthemembers and of accepting otter acquired fie be subject to abovementioned limit."

(4 marks each)

29 Answer 4(bXii)

PP-CRt-June 1 201

Authorisation inveslin the shares to of investee company Board [/eeting Resolutjon under section 3Z2A rheCompanies 1956. of Act, Resolved pursuant section that to 37.2A andother applicable provtstonsany,of theCompanies 1956andauthorization if Au, gi""";y lh"";";iers or tnecompany their meetjng on ................ at hetd unantmous-con";;r;,;;t;". Direoors and rsnereby be glven invest to upto....... equity sharer VL. ieiit". ara price "r of Rs...... "i Answer 4(c) No,Sanction scheme amalga.mation to of cannot refused lheground the be on that transferee company doesnothave- icient srff auil;;r;; rneappointed lf thescheme sanctioned, transt"r"" dare. is the ";;;; rrsauthorised errectthe to scheme "ompany "u-ri;;;;;il;;,"r""." u"i,",iiiJ,i""Eui la. [Rej

|X?!U;.t'"
Question 5

83 r,gaul comp.

(a) A company has passeda special resolution for,reductionof capital,andeffected thesame cerlificate confirming the reduction.

andapp,ed before Registrarcoiiiiiiiiaocl th.e of

for issuance of

The ROC issuedceftificateconfirming thereduction. Subsequen y,it was found (i) the company had no authority under its afticlesto reducecapital; and (ii) the special resolutionwas invalid one. State with brief reasons sep.a.rately in boththe ---' - above circumstances, whether " "" "" the reductionof capital wouldbe illowea. (b) lt is a well known fact that to maximise the shareholders *r", ::#:::, havins surptus funds often in-duced to o;;; ;;i;i";;;';;; shares. what are common reasons which usua y induc"s a corpa,rylJ )",son rc ouy_back? (c) A tistedcompany haddrafted a speciarresorutionto be passed thro:;:::::: balot to buy_back

2s% of fiia up iniir""{ii,. secretary, arenr,,*l ,its you "qiity resolution. What factors you constder prepare wilt.,:.1:l!:;;;;;;;;"";:,:;"nt to

theexplanarcry statement?

As a Company to the proposed

d) A company whetherlisted not required make or is to a declaration of':;!::j totheappropriate autnornies iiii"iin,ns a buy-back 1l!-l:" rn viewof the ,,o?ubrjt or snares. statem.ent ar" r"qrir"a 6 irri"r';here you the decraration at sotvency to be submitted caseol _ is in
(t) A listed company. (l) An unlisted company. (iii) A private timited company. (1 mark each)

PP-CRl*June 1 201 Answer 5(a)

gO

Conclusiveness certificate reduction capital of for o, Where Registrar issued certjficate the had his conrirming reduction, same the the was heldto be conclusive although wasdiscovered inat the company no it tater had authority under articres reduce its to capitar e watxar i;iiti ttd., (1903)88 LT 792 a [8 (ch D)l simirarry, a casewhere speciar in the resorurion reouction an invarid ioi was one, thecompany gone but had through thereduction, reoucrron notaflowed with thl was to be upset[Ladies,s Dress Assn.v. putbrook,lf SOOI Oe iiO;. Z Answer S(b) Good.corporate governance for maximizing shareholder calls the value. Whena company surplus has fundsfor whichit doesnothavegoodavenues dep,oyment for assuring average an return capital on employed earnings share, company,s and per the financial structure requires balancrng. Thereasons buy-back be oneor moreof thefollowinq: lor may (i) to improve per earnings share; (ii) to improve return capitar, on return networth on andto enhance rong_term the shareholder value; (iii) to provide additionar route sharehorders shares an exit to when areunder varued or arethinly traded; (iv) to enhance consolidationstakein thecompany; of (v) to prevent unwelcome takeover bids; (vi) to return surplus cashto shareholders; (vii) to achieve optjmum capital structure; (viii) to support price share periods sluggish during ot market conditions: (ix) to service equity the moreefficienfly. Thedecision buy-back alsoinfluenced various to is by other factors relating the to company, suchas growth opportunities, capital structure, sourcing funds, of iost ol capital optimurn and allocation lundsgenerated. of Answer5(c) Whereas unlisted companies should obtain shareholders, approval passing by the special resolution at a dulyconvened only general meeting, listed companies sh-ould obtain suchapproval postal by ballot, The noticecontaining special the resolution proposed be passed to shouldbe accompanied an explanatory by statement stating: (a) all material facts, fullyandcompletely disctosed: (b) the necessity buy-back; for

(c) rhecrass security or intended tor;epurchased under o.|y_#,]*" rhe (d) theamount be invested to under buy_back; and (e) thetimetimit comptetjon for of buy_back 77A(3)]. [section Answer 5(d)

r0,,

t'

solvency tneprescrioetJ in tf,egrstrar

(ii) In the case of unljsted cor

berore a buv-back, Itr""ff ffl ti:tJ,;[::l':ed.securities, makrns the of companies and

sEB-i, o"'"r"Lii"" " "r

nesi"tiuior to riled ;Jffiil:";:?;ffi'Jrlr*'l1i$,:::orvencvhas be with

o, shares. PART B (Answer ANy TWO questions from thispatt.)

(iii) Inthecase private of a,rl:l^g^"lp?"|es, Dectararion the orSotvencyto be filedwith Registrar Companres is of beforebuy,back

Question 6

' 'l:il{:!';'#;::,:':t;Zli:ii-l

''

rne Egatprovision,ot rn" eilr.n'o''tions)

the orthe ,i:k !?^p"nv'is purpose sick Acl' 1985' Discuss

with reference to marks)

Answer 6(a)

**very and :H::i ,':i;";fl";''i",,1:::r" tribunats ,,"lJ"ljiJ)1, ",r,",,,r"(8

lmmunityfrom Certain Litigations Section _ 22

inrespect anvloans advance of the,nousr.ar or gran'ied com;;;; .h;j;;J"gY"rantee to

il:;::',njrr1[:*#rtr#j',r:T:fij[,",'Tff i::H:"1';;;:rrui:*:l

s*t'""t6, -3orrne industriar ",i:1:i9tl distressp,"i"3ffi:H;:Tffiil; company or o.ooe.t or,''" ino*iij joil^t^ol:*".rt'or1, "titnetiteaiainst es a;;;iil; "f

the management lhe s jck industnal of _ -'s companyis tak : __Where any schemesanctl uanceof

orillly.scheme. an appear sect,on ;iT,:ffi.r::l:J:;;il1"i on unoe, i! ,;i"1 ;;;ff,l ff":,"nLt

::fl[H[1":"ff#i]Iil::i-T'l'"d";.;;,;il;;;;*ff ;?li:HH,'ffiJ relerred underSeitio" tz to oreparatroncon.;6"r"11en il ,"j",or

navrng under said ororn"r. eifect rhe Act r"*. rn" Jooulilr#ii'J,

scA isa superior prorectjon operates asjt "",-l'?:,!lT;?:T#iff::ffi.,,^o:.?:or rnemorandum a-nd ;.,"i"'"

fiff;:ffi [.",",i,l;?? "i".,ii,lill,i: "l+;[:l*;fi

BrFR as case ue,iilXil:]|"::iX1#f[j'dh"', *itn conseni or rn" mav ol """"0t tne

Funher it sha not be ,"*,"]l:r-,f: .nlreholders suchcompany of person nomjnate to or any other or appoint person o" a any to onectoi"oi ii," no "orpuny "no

PP-CRl-June 1 201 32 resolutjon passed anymeeting_of shareholders at the ol suchcompany shallbe given e ectto unless approved BIFF. by Answer 6(b) Composition Tribunal of The Becovery DebtDueto Banks of and Fjnancial Institutions 1993 Act, thata Tribunal shall consist one]oerson to be called presiding provides of only, the Off icer, be to appointed, notif bv ication, th.e bv ienrrarc";;r;;;; T;''c"entrar covernment may presidino arso authorise the otficeror onetriounaitooisc-tra-r"gethe atso functions of the Presiding officerof anJtner triounat. n"r, il; ffi;,rj, *no n", been, is or qualified be,a Djstrjct to Judoe maybe appointed presiJing Officer, shall, who holdoffice a termof fivevJars romtneoate as the for f on wni"r.r- - '" hisoffice untir n" or he attains ageof sixty-two lhe iears,whichever eartier. "iilr. is TheCentral Government shall,also appojnt or more one Recovery Officers such and otherofficer-s emproyees tnee overnmenirlv and as i"ni"r, iiiir" Recovery oticers andother officers emDlovees a-Tribunar dLct,uig"'in"i,. and of shat e vvriqi vv I' rL run"tions under the general superintendenceof lhe presiding
Ofticei.

Appeal the Appellate to Tribunal 20 lhar aggrieved an ordermade,or _^_-9g"ll"l oI the Act provi.r_es any person by deemed havebeenmade. a Tflbunal to bv under A"t, ,ay prefer appeal an lhrs an to Appeliate Tribunar havino iurisiiction tn",uli"r. r.r'o'""pp;;1:#" to the r" rie Apperare Tribunatfrom order an mide bva Triornar*itr., coi.l"#ii,i"'p"n,".. rn" Every appeal sharr rired be within period iorty-five tromtneoat"on a ot oays of theorder made, deemed have or to beenmade, tireTribrn"f ."""iu"i'oy "him "ni"n "opy it shall by i. and be in suchfo'' and accompanied suchfee j*."riieo. provided by o" thatthe Apperrate Tribunar entertain appear "".n"v may an after expiry irresaro the ot period forty{ive of daysif * is satisfied therewassufficient."".; that f";;"ilir;;;i witnin tharperiod. Question 7 (a) ln a winding aI is teftto thecompany, contributories up, the .voruntary and the creditors seftletheirafiairs,without to interventib, ofin" f* as possible,. Can the counpiercethe process, whatis its "iun "s and powerto plrce the process, whenandwhere is beingexercisedvested and it ? Brieflydtscuss relevant alt asPecls. p marks) (b) ln consequence winding.up a timited of of company, personbecomes a -The both contributory a creditoralmost tne and fo, personmade an apptication thetiqridno:,:l::,,!,"-?rount to oepiyaiie to ""rre'"n6Lit.- as .contributory,may be set-offagainsthis ,receivable, amounttrom tie.Lonpany. Shall the person get suchrelief? lf not, whyand on whatgrounds i (Smarks) (c) What 'non.p.erforming is asset'(NpA) undertheSecuritisation Reconstruction and of Financial Assets and Enforcement Securitytntieisi ect,zOOZ ot ? (5 marks) Answer 7(a)
Invol.unlary windingup it is leftto the company, contributories the . and the creditors to settletheiraffairswithoutintervention or tnb c6r.t a. i"i u"r]"o"",0,".However, the

l;::Hllfil

1""1^11"5,,1300".0,#:::il:t::l*l orwindins upbejns

The Courtis vestedwith (0 To appoint,n" ou,.'n" to"o*ing powersin voluntary windingup: (ii) T^o removethe liquidator and appoint the

[:r#:?",Tif ]ir;r;:nT:;: muhrht*;::i*lil,liiiifi :TJl j.*.ru"tlXl#lft ji;

;""'ffi#;!T?,1ff3:Jl "ono,"tJln-#
other person riquidator as riquidator isu.ting where no "tu tJ::t:;Xu;1?1",i;'

33 companies 1956. .. Act, ^^-,r, provisrons which prc thecourr;il; ,ffi't;":1ns certain "on,-,^-

PP-cRl-'June 2011

(i")

(iii) To determine remunerations the of riquidator'c,| theoffrciar when w' | appointed a riquidator Liquidator as is ts"ct.n sr srjji]-,vr

asriquidator o,n"l, justitiabre bei"g otliciarLiquic on o"'"on cause .r.,"\^," rdili;jtl!,otinr 'srde. the entered between :l :" uopeal arransement into a being
made ar by

J""#;h:11];ij,llll

'''" "i'ltg"t""'it?3t"it'iX't3i;;t*u't.oo (v) onan apprica,,on o,,loto'""o;;rcontributory creditor: Liquidator or or

(a) ro determineale ''

wrthin weekso, ,,iu ^olt-T-11 3

"",m;*:dJ_"i?r#:::iji:H,l{1i;$";til.,% H,ttll rrlhecompany belng were wound ovu'r" up Cori rs*ti"" drarij(bxrse
(b) to exeircise, res as (vi) Tosetaside attachmnt, any distress executjon or started against estate the or rh"."omm"n"eir";,;il"

ri""tr^iibir ttlilf

o'""'on arisins thewindlns ota company ln up

made conrributoryL" cll jl- t "pplication by theliquidato;, dr"Jit. ir satisried it isjustandben"r"l"r lhat ",. r" o" * rs*ti"n'ir'arii u"i,ii'n
(vii) Toorder public examinalion of anyperson connected

,"Jh"j":t ,iir;#r,i?-"|:,.

windins onsuch up

Answer 7(b)

rormation orpromotion .orp"nvor'in orthe ti!:ffifi"^?f:119resajd the rct or rls affairslsection 519(1)]'

*i,","r,"-r. olrnron arraud that ;:i"J:H;ilffifr"J"tX"_lq:id"t9,jn oitn'" has

orastohis.".o*,",0Tjil[,:i:iii,"",",?!::::'S:i:lT".j*,:,", j

withpromotion formation or ottcer connlcteJ ;il-,#';tr;;;'ihe company ,".j i-,:i3:Ti:#:1 inresard

windinsuptn"i,,iiiii",:;;,;":k;,,;2i,1";;^;rni;iz;:i:f fi:,,"_*;ij

. con. a creditor theco, of orvroends. itsororherwis") prof otthis ag-ai;;;ffrT,l'$:T[:J"",i ' .rnereanexpress rs "j:::11?.i?.9 deots ugr""r"nllloj-"?t

A person,who is both a

PP-CRl-June011 2

34

denialof righlof set off is thatwherea person The underlying Comp.Cas.1.751. principle in to in entitled DarticiDate a fund is also boundto makea contribulion aid of thattund,he his until he has discharged obligation cannotbe allowedio participate IRe. Peruvian RailwayConstructionsCo. (1915\ 2 Cn. 4421. Answer 7(c) Non-Pertorming Assets [Section2(1)(o)] Asset"as lo meanan assetor accountof a SARFESI Act defines"Non-Performing as classified a bankor linancialinstitution sub-standard, by which has been borrower, loss assetdoubtful or or is (a) in case such bank or financialinstitution adminislered regulatedby an or by constituted appointed any law lor the time aulhorityor body established, relating assets to withthe directions guidelines or beingin force,in accordance or issuedby such authority body; classi{ications relatingto wilh the directions guidelines or (b) in any other case, in accordance issuedby the ReserveBank. assetsclassifications Ouestion I (a) What is the procedural requirement for recognition of the UNCITRALModel Law ? (b) Write shon notes on the following: (i) Lok Adalat (ii) Committeeof inspection (iii) Corporateinsolvency. 'foreign proceedings' under

(9 marks)

(2 markseach)

8(a) Answer (Article15) of tor Application recognition a foreignproceeding for requirements an the Law, ines coreprocedural def Model Article o{UNCITRAL 15 into the recognition.incorporating provision In lor representative by application a foreign process requirements the withadditional not national it is desirable to encumber law, to for representalive apply thecourt recognition may A foreign these requirements. beyond An hasbeenappointed. representative proceeding whichthe foreign in ol theloreign by: shall {or application recognition be accompanied proceeding appoinling and the (a) A certified commencing foreign copyo{thedecision or representative; theforeign of (b) A certilicate the from the foreigncourt affirming existence the foreign or representative; of proceeding oftheappointmenttheforeign and (a) tc referred in subparagraphs and(b)'anyother (c) Intheabsence evidence of proceeding and ot to of acceDtablethecourt theexistence theforeign evidence representative. ol of theappointment theforeign by identifying shall for Anapplication recognition alsobeaccompanied a statement to representative. proceedings are inrespect thedebtorthat known theforeign of allforeign

Answer 8(b)(i) Lok Adalal

;11i,'[]J,l#"l:;#:?;;#:Trul-li*, ufi,,nrflld
The conceptof Lok Adali

l""T,'#rill:ili1#:ff.,f*ffi ilflitil*i#!,'flfu i:"j"!fi

*' n r osit r il : l -" o rorecnion f :'#rui':g,,.'l$"",',n ""'i

,".Jffi ,n"::!:"1"[j:]f1fl"T";H?,,T:J: il?;:lff ;Tj;[;:ffff!::;:ili:,

,lI"#ffi;fi,:'Jf :ffi;:n"'ru::ts in supp,ied supr"li;i",r*j,lj ;ff

;iil II"JU:"?fi;;":?1i 51*iii fflffi:1,:;3 j"#t i,"*"''ffi $:#,T..",:,:1

Answer B(bXii) Commifteeof Inspection

ilx?'"ffi 3;ff :ilil#1l#T#d:t#F:l:ri[{d

',.:ijltii"":1"*ig?il1#, ':r i*:i.{#;{fi trL**"ijflr]*fi jl,;';{,:"H;ffi

Answer 8(bXiii)

f,iy;*x***s+=t*-I'i,:rruf ;;fit#",l'.ffi

i "", #i*r*i*;t*,;lrt"*'r":iffi *. ;ffi;,?, :" m ir='***tl*tl,+,-*h*'""#f*:il i,!iH"H:rff

up. cred'ors ,he may a, il:,""".d:i"T:y:[fu{l[i1*u

Corporate insolvency

iltrr:H,,i'i4.{#l"kdiii,,[":*i;Hff i,#[if *"#f #ff lli

PP-CRl-June2011

36

is A a personcan becomeinsolvent, companycan also become.insolvent company to exceedits assetswhich resultsin its inability when its liabilities laid to be insolvent pay otl the debts. whetherthe company of ln all cases of insolvency a company,the questionis not but p"V ii ,tt O"bts presenilydue or payablein future and continuelo function' probable and "un whelherit is able to meet lts currenldemandsand whetherits existing it futuredemands When a companybecomesinsolvent is assetswouldsufficeto meet and are realized When a companyis wound up' its assets *ounO up or revived. "itn"t in paid o{J the realisation the mannerprovidedin the Act' from are liabilities