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RESTRUCTURING PROPOSALS Restructuring Proposals can be Internal or External. The Statutes and Compliances are numerous and the Authorities to be approached are SEBI, HIGH COURT, COMPANY LAW BOARD, SHAREHOLDERS, SECURED LENDERS, REGISTRAR OF COMPANIES, WORKING CAPITAL BANKERS and obviously the staff and Management Team. The Companies Act, 1956 in Sections 391 to 396 mentions about ARBITRATION, COMPROMISES, ARRANGEMENTS and RECONSTRUCTION.

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 AMALGAMATION

happens when two or more existing companies go into liquidation and a new company is formed to take over their business. Eg. If XY Ltd is formed to take over the businesses of two existing companies, X Ltd. and Y Ltd. ABSORPTION happens when one or more existing companies goes into liquidation and

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some existing company takes over its business. Eg. If the business of an existing company X Ltd is taken over by another existing company Y Ltd.
EXTERNAL RECONSTRUCTION happens when one existing company goes into liquidation and a new company is formed to take over its business.

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Eg. If a new company X(New) Ltd is formed to take over the business of an existing company X Ltd . Amalgamation includes Absorption, and in such cases, a new company may or may not be formed. Accounting Standard 14 of ICAI ( Accounting for Amalgamations) is a mandatory standard. AMG can be of two types, namely:MMS SEM-II- LTAB -13. Mar. 22nd, 2012 5

 AMG

in the nature of Merger; & AMG in the nature of Purchase. Amalgamation in the nature of Merger:The distinctive features are The assets & liab. of the Transferor Co become the assets of the Transferee Co; Shareholders of the Transferor Co, on AMG, immediately become shareholders of the

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Transferee Company. The business of theTransferor Co is intended to be carried on by the Transferee Co; The Book value of the assets is neither revalued nor adjusted, excepting to ensure uniformity in accounting policies. The Pooling of Interests Method of Accounting is followed for this type of AMG.

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AMG in the nature of Purchase :This method is used when some of the conditions of the earlier type are not satisfied. The method of Accounting applied is Purchase Method In this method, the difference between Purchase Consideration and Value of Net Assets is either Goodwill or Capital Reserves. The Goodwill shall have to be amortised to Income within five years.

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CONSIDERATIONas defined in AS14 is the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the Transferee Co to the shareholders of the Transferor Co

Some examples.. To solve 2/3 problems.

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1) 2) 3) 4)

In IR, the companys existing financial structure is reorganised without dissolving the existing company, and forming a new company. This can be done by Alteration of Share Capital- sec 94 to 97; Reduction of hare Capital sec 100 to 105; Variation of Shareholders Rights sec 106; Scheme of Compromise / Arrangement sec 391 to 393 and 394A;

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COMPROMISE ( C ) refers to an amicable settlement of differences by mutual concessions by parties to dispute. C presupposes the existence of some dispute and the objective is to settle the disputes between the company and its Creditors / Members.
ARRANGEMENT carries a wider meaning than Compromise. It implies re-arrangement of rights and /or Liabilities of members/creditors without the existence of any dispute.

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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES) Sec. 390 The expression Arrangement includes a reorganisation of the Share capital of the company by the consolidation of shares of different classes or by the division of shares into shares of different classes or, by both these methods; and Unsecured Creditors, who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.

Sec. 391 Power to make Compromise or make Arrangements with Creditors and Members -

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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) Where a Compromise or Arrangement(A) with Creditors and Members is proposed between a company and its Members/creditors or any class of them, the NCLT may, order for a meeting between the company and the second party- to be called , held and conducted in such manner as the Tribunal(T) directs. If three-fourths of the members/creditors in terms of value, agree to any C / A, it shall be binding on all creditors/ members of that class, on the company, and the Liquidator, in case the company is being wound up. However, the T shall give its approval only after it is satisfied with the financial
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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) Results and the Auditors Report has been furnished and studied. The Order of the T shall have no effect until a certified copy of the Order is filed with the Registrar. The company shall, after the Order is issued, attach with every copy of the MOA, a copy of the Order. Sec. 392 Power of the Tribunal to enforce C/A The T shall have the powers to supervise the carrying out of the Orders for the C/A, and also has the powers to modify the Scheme, if the situation demands so.

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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) Sec. 393 Information as to Compromise or Arrangements with creditors and members - the Notice calling for the meeting shall clearly state the terms and conditions of the C/A, and also explaining the material interest of the Directors, in every possible capacity, and the impact that such interest shall have on the C/A. In case the Debholders are also involved, similar clarification to be given to the Trustees of the Debholders. For non-disclosure of information or suppression, every Officer can be penalised.
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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) Sec. 394 Provisions for facilitating Reconstruction and Amalgamation of Companies - where an application has been made to the Tribunal u/s 391, for the sanctioning of a C/A, between a company and creditors/members, and a) That the C/A has been proposed for the purposes of, or in connection with, a scheme for the R of any company, or the A of any two or more companies; and b) That under the scheme, the whole or any part of the u/t, properties or liabilities of any company concerned in the scheme( here referred as Transferor Company) is to be transferred to another company( here referred as Transferee Company), the Tribunal shall, make
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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) Provision for all or any of the undermentioned matters:i) The transfer to the Transferee company of the whole or in part of the u/t, properties or liabilities of any Transferor Company. ii) The allotment or appropriation by the transferee company of any shares, debentures, policies, or like interests in that company as mentioned in the C/A; iii) The continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; iv) The provision to be made for any person who dissents from the C/A; and
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RESTRUCTURING PROPOSALS (THE STATUTORY GUIDELINES)(contd..) vi) Such incidental, consequential and supplemental matters as are necessary to secure that the R / A shall be fully and effectively carried out. Within 30 days of the passing of the Order, the company shall file with the Registrar a certified true copy. Sec. 394A Notice to be given to C/G for applications u/s 391 and 394 :- The Tribunal shall notify every application made to it and shall take into consideration any representation made by the Govt. before passing an Order.

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AMALGAMATION PROPOSALS (THE STATUTORY GUIDELINES)(contd..)

Sec 395 Power and duty to acquire shares of shareholders dissenting from the Scheme or Contract, approved by majority- Where nine-tenths of the shareholders of the company whose shares shall get transferred agree, the Transferee company, within six months from the date of approval of the amalgamation, give notice to the dissenting shareholders to acquire their holding at the terms as agreed to, in accordance with the Scheme. 1. Sec 396(5) defines a Dissenting Shareholder as one who has not assented to the Scheme or Contract, and
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AMALGAMATION PROPOSALS (THE STATUTORY GUIDELINES)(contd..) any shareholder who has failed or refused to transfer his shares to the Transferee Co. in accordance with the Scheme. Sec 396 Power of the C/G to provide for Amalgamation of companies in national interest Where the C/G is of the view that two or more companies should be amalgamated in the public interest, it shall, by notifying in the Official Gazette, order so with such property, powers, rights, interests, authorities and privileges and such liabilities, duties and obligations, as may be specified in the Order. U/s 396A, the Books and Papers to be preserved for the amalgamated Co. till the C/G desires.
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COMPETITION ACT, 2002.

MONOPOLIES AND RESTRICTIVE PRACTICES ACT, 1969.

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An Act to provide, keeping in view the economic development of the country for the establishment of a Commission to prevent practices having an adverse effect on competition, to promote and sustain competition in the markets, to protect the interests of the consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.
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Sec 2 defines some important terms like :a) Acquisition, Agreement, Cartel, ba) Appellate Tribunal means the the Tribunal established u/s 53A of the Act; f) Consumer means a person who buys any goods or hires any service .. h) Enterprise means any person or a Dept. of the Govt. engaged in the activity of production, storage, supply, distribution, acquisition or

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control of articles or goods, including dealings in shares and debentures. Sec 3 Anti Competitive Agreements: No enterprise or AOP shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control which causes or is likely to cause an appreciable adverse effect on competition in India. This includes a Cartel.

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This section does not apply to JVs provided it increases the efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Under this provision, the following activities are contraventions :- Tie-in arrangement b) exclusive supply agreement exclusive distribution agreement to deal & e) resale price maintenance.
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The above practice includes unfair or discriminatory action, limiting or restricting production or services, obstructing or denying market practices, entering into contracts with supplementary tags, and to spread its dominant status into another market.

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This section discusses about Mergers and Amalgamations of two or more units and the adverse impact that may arise on fair competition due to this combination. The Commission shall, on a written application to it, examine the impact of this combination and grant its approval. Sec 7 mentions about the setting up of a COMPETITION COMMISSION of INDIA.

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Sec 53A discusses abut establishing an APPELLATE TRIBUNAL.

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An Act to provide that the operation of the economic system does not result in the concentration of economic power to the common detriment, for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and for matters connected therewith or incidental thereto.

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Section 2 defines some important terms like the MRTP Commission, Director General of Investigation and Registration, Undertaking ( which by itself or jointly with interconnected u/ts produces, supplies, distributes or controls not less than onefourth of the total goods that are produced or supplied in India, or services rendered.) Sec 3 states that the Act is not applicable to:
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Govt Controlled company, Financial Institutions, Co-operative Societies, or Trade Unions. Secs 5 to 19 discusses about the appointment, powers, functions of the MRTPC and DGIR and the ways for implementing the Act. Sec 27 Division of an Undertaking: The MRTPC, on receiving a complaint from a Trade Association, or Customer, or from the State/
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C Govt. or upon its own knowledge or information, is of the opinion that that the working of the U/t is prejudicial to the public interest, or has led, or is leading, or is likely to lead, to the adoption of any MTP or RTP, inquire, as to whether it is expedient in the public interest to make an order For the division of any trade of the u/t by the sale of any part of the u/t or assets thereof, or
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for the division of any u/t or interconnected u/t into such number of u/ts as the circumstances of the case may justify. The C/G to be informed of the decision by the MRTPC. Sec 27A empowers the C/G to direct severance of inter-connection between U/ts. Sec 31states about Investigation by Commission of MTPs If the C/G feels that MTP is prevailing, then it can order the Commission to

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inquire and to report the findings. u/s 32, all MTPs are prejudicial to public interest except when the C/G is a Party or if it is for Defence related needs or for Internal Security.

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Certain activities/agreements as mentioned below, needs to be registered : Which restricts the buying or selling of goods; For purchase of goods to also agree to purchase some other goods; Restricting a person to trade only in the goods of the Seller; To buy or sell at pre-determined prices;

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 To

force discounts, rebates or credit; Restricting the re-sale prices as fixed by the Seller; To restrict the supply of goods or to earmark the market area for business; Sec 35 states about Registration of Agreements as ordered by the C/G.

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 UTP

is a trade practice, which, for the purpose of promoting the sale, use or supply of any goods, or for the provision of any services, adopts any unfair method or unfair or deceptive practice, including the undermentioned practices:Falsely represents that the goods are of a particular standard quality, grade, composition, model etc. Falsely represents that the services are of a
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particular standard, quality or grade; Falsely represents second-hand goods as new goods; Makes a false or misleading representation concerning the need for, or the usefulness of any goods or services; etc. Sec 37 Investigation into RTPs by MRTPC : Whether a RTP has been registered or not, the

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Commission ( C ) can conduct an enquiry and if it is of the opinion that the practice is prejudicial to public interest, the C can order for the discontinuance of the practice or shall be modified as the C directs. Sec 38 discusses about Presumption as to public interest. Any RTP is prejudicial to public interest unless the MRTPC is convinced that the RTP is for the public good.
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