FormalitiesDate of reorganisation
Can a corporate reorganisation be backdated or deemed to have already taken place, for example from the start of the financial year?
Under the court approval route, parties undertaking corporate reorganisations may choose an appointed date, which may be a date prior to the date on which the reorganisation is approved. The reorganisation is deemed to be retrospectively effective as of the appointed date, and the valuation of assets and securities in respect of the reorganisation are carried out as of the appointed date.Documentation
What documentation is required in a corporate reorganisation?
In a corporate reorganisation under court approval, the following documentation is required:
- an application to the NCLT, setting out the entire scheme of the proposed reorganisation; and
- a notice to the shareholders and creditors of the company, together with details of the proposed reorganisation, and a report of the directors of the companies involved explaining the effect of the reorganisation on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders; setting out the share exchange ratio, if any; and specifying any special valuation difficulties.
Following sanction of the scheme, parties should enter into amendment agreements with all third-party contractual counterparties to expressly capture the revised terms applicable pursuant to the reorganisation.Representations, warranties and indemnities
Should representations, warranties or indemnities be given by the parties in a corporate reorganisation?
Representations, warranties and indemnities are typically not provided in reorganisations that are limited to the same corporate group.Assets versus going concern
Does it make any difference whether assets or a business as a going concern are transferred?
As set out in question 13, in the case of a demerger, if the undertaking is not transferred as a going concern, it would not be eligible for tax-neutral treatment under Indian tax law.
For other forms of reorganisations, from a legal perspective, it is immaterial whether the assets or business are transferred as a going concern.Types of entity
Explain any differences between public, private, government or non-profit entities to consider when undertaking a corporate reorganisation.
Special provisions for listed entities
Reorganisations involving listed companies must comply with additional requirements set out in circulars issued by the SEBI from time to time. Broadly, such reorganisations must comply with the following additional requirements.
As set out in question 5, reorganisation proposals involving listed entities must comply with all applicable securities regulations.
A copy of the proposed reorganisation must be filed with the stock exchanges before the reorganisation plan is filed with the NCLT. The proposed plan will be forwarded by the stock exchanges to SEBI, which will also review and provide comments on the proposed reorganisation plan.
The concerned stock exchange will issue an ‘observation letter’, or ‘no-objection letter’ to the applicant, containing consolidated comments from SEBI and the stock exchange. This letter must be submitted before the NCLT. The observation letter typically contains objections based on potential violations of securities regulations, or the intent of the applicant to circumvent securities regulations (such as the obligation to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011).
The listed company must mandatorily provide an e-voting facility to its public shareholders for voting in the meeting of shareholders called to consider the proposed reorganisation.
If the proposed reorganisation meets certain conditions (such as involvement of another entity belonging to the ‘promoter group’ or any ‘related party’ of the promoter group), it will require approval from more than 50 per cent of the public shareholders casting votes at the meeting.
Special provisions for government companies
Government companies can undertake reorganisations through a process identical to court approvals available to regular companies, except that the relevant authority for such government companies is the central government, as opposed to the NCLT.Post-reorganisation steps
Do any filings or other post-reorganisation steps need to be taken after the corporate reorganisation takes place?
The following post-reorganisation steps are required to be taken after the reorganisation is approved by the NCLT:
- the order passed by the NCLT must be filed with the RoC within 30 days of receipt of the order;
- in the case of a merger, demerger or amalgamation, the company concerned must file an annual compliance statement with the RoC until the reorganisation is fully implemented;
- in the case of listed companies, a copy of the NCLT-approved scheme together with other supporting documents must be submitted to the stock exchanges, where the shares of the company are listed;
- post-facto intimation regarding any change in employer, name of the entity, or other similar changes, must be made to authorities under applicable labour laws, such as the Shops and Establishments Act, Factories Act 1948, Employees Provident Funds and Miscellaneous Provisions Act 1952; and
- post-facto intimation to authorities in relation to any licences that are transferred from the transferor company to the transferee company.