The document discusses corporate restructuring through various methods under Sections 391-394 of the Companies Act, 1956. It outlines types of restructuring such as merger, demerger, and reduction of capital. It also discusses the roles of approving authorities like the High Court and BIFR. Examples provided include a merger through BIFR to revive a sick company and a unique demerger scheme by Reliance Industries Limited. Benefits of such schemes include separating unrelated businesses, providing better valuation and liquidity to shareholders, and cleaning company balance sheets.

1. CORPORATE
RESTRUCTURING
Pavan Kumar Vijay

2. GOVERNING PROVISION
SECTION 391-394 of Companies Act, 1956
Most liberal section in the entire
Companies Act, 1956.
By way of SCHEME you can
propose & achieve whatever you want

3. TYPES OF RESTRUCTURING
MERGER
DEMERGER
REDUCTION
OF CAPITAL

4. RESTRUCTURING
Approving Authorities
High Court BIFR

5. MERGER
MERGER REVERSE MERGER
“Combining of two or “As a commercial term, it
more commercial means when a Healthy
organizations into one in Company (in terms of size,
order to increase capital or listing status)is
efficiency and sometimes merging in a Weak Company
to avoid competition”. (in terms of size, or
unlisted)”.
SECTION 391-394 of Companies Act, 1956

6. DEMERGER
“Division of a Company with two or more
identifiable business units into two or more
separate companies ”
SECTION – 2(19AA) of Income Tax Act, 1961.

7. REDUCTION OF CAPITAL
“Extinguishing or Reducing the paid-up
capital, Securities Premium Account or
liability of members with respect to
their unpaid calls”
-An effective way of internal
restructuring
SECTION 100 to –105 of Companies Act, 1956
SECTION – 100 105 of Companies Act, 1956

8. A FEW VARIETY OF MERGER
 Unlisted with Listed
 Listed with Unlisted
 Merger of Subsidiary with Holding Company
 Merger with Group Company
 Healthy Company with Weak Company
Merger through BIFR

9. STOCK EXCHANGE‟S ROLE
REQUIREMENTS
Listing Agreement Compliances
Stock Exchange Internal Norms
Compliance of Securities laws
Compliance of Companies Act
PERSPECTIVE
Observations

10. Listing Agreement Compliances
Clause 24(f)
“The Company agrees that it shall file any
scheme/petition proposed to be filed before any
Court or Tribunal under Sections 391, 394 and 101
of the Companies Act, 1956, with the stock
exchange, for approval, at least a month before it
is presented to the Court or Tribunal.”

11. Listing Agreement Compliances.. contd
Clause 24(a)
“The Company to obtain „in-principle‟
approval for listing from the exchanges having
nationwide trading terminals where it is listed,
before issuing shares or other securities to the
shareholders of Transferor Company.”

12. Listing Agreement Compliances..contd
Clause 40A
“The Company to comply with Continuous
Listing requirements while framing a scheme of
merger/demerger.”

13. Stock Exchange‟s Norms
Presently, Stock Exchange(s) are laying various other
norms before giving approval to the Companies
for
„Merger‟, „Demerger‟ „Reduction of Capital‟

14. Stock Exchange Norms..contd
MINIMUM CAPITAL REQUIREMENTS
1. Issued & paid up Equity Capital – Rs 10 crores
(if there is a change in management/control)
OR
Issued & paid up Equity Capital – Rs 3 crores
(If there is no change in management/control)
AND
2. Minimum Net Worth – 20 crores
(Post amalgamation)
*BSE Stipulations

15. Stock Exchange Norms..contd
CONTINUOUS LISTING NORMS
(Transferee Co is Listed Co. & Transferor Co is Unlisted Co.)
 Non- Promoter Holding – 25% of Post -merger Capital
* (The entire holding of the shareholders of the transferor company be
excluded)
 If Non- Promoter Holding – Falls below 25% of Post
merger capital, then the Promoters have to dilute
excess portion.
*BSE Stipulations

16. Stock Exchange Norms..contd
LOCK IN REQUIRMENTS
“25% of the newly issued capital pursuant to the scheme
of amalgamation should be kept under lock in for 3 yrs
from the date of listing”
“The lock in period are varied by the stock exchange on
case to case basis”
*BSE Stipulations

17. Compliance of Other Laws
“The Stock Exchange(s) alongside considers
the compliance of Securities laws,
regulations, rules etc. applicable on the
Company and Companies Act also”

18. Compliance of Other laws..contd
SEBI (SAST)REGULATIONS ,1997
Regulation 3(1)(j)(ii) provides an exemption for acquisition
of shares:
“Nothing contained in regulations 10, 11 and 12 of these
regulations shall apply to shares acquired
Pursuant to a scheme :
(ii) of arrangement or reconstruction including
amalgamation or merger or demerger under any law or
regulation, Indian or foreign;”

19. •Valuations Analysis
•No undue benefit to Promoters /
Particular group
•Investors interest not to be affected
•Back door Entry for listing
•Change in Management/Control

21. ISSUES
 Whether application under Clause 24(f) of
the Listing Agreements is an approval or
information?
 Whether no communication from Stock
Exchange within 1 month amounts to
approval?

22. ISSUES
 Whether Merger without approval under
Clause 24(f) of the Listing Agreement is valid
considering that the High Court approved the
same?
 Whether varied lock in period stipulations
imposed by Stock exchange are valid?

23. ISSUES
 What are the repercussions in case the
promoter‟s shareholding goes beyond 75% of
the post amalgamation capital?
 Whether a Suspended Company is eligible to
obtain in principle approval from stock
exchange?

24. ISSUES
 Whether Shares placed to QIB's in an
Unlisted Company prior to merger will be
counted in the post merger non -promoter
shareholding of a Listed Company?

25. MERGER THROUGH BIFR
AN EFFECTIVE
WAY
TO
REVIVE
YOUR
SICK COMPANY

26. MERGER THROUGH BIFR
EXEMPTION FROM TAKEOVER CODE
Regulation 3(1)(j) of SAST Regulations, 1997 provides
that:
Nothing contained in Regulation 10, 11 & 12 shall applies to acquisition:
j) Pursuant to a scheme :
(i) framed under section 18 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986);

27. MERGER THROUGH BIFR
EXEMPTION FROM CL40A OF LISTING AGREEMENT
Clause 40A as amended on 13th April, 2006 gives
exemption to BIFR referred companies:
The Non-Promoters‟ shareholding can be below 25% of the
total capital of the company pursuant to BIFR order in
any rehabilitation scheme.

28. DEMERGER
Reliance Capital Reliance Natural
Ventures Ltd Resources Ltd

29. TYPES OF DEMERGER
 Listed Company demerging into two
companies (both could be listed).
 Listed Company is demerged into two
companies and another unlisted entity is
merging with the one of the demerged entity.
 Distribution of shareholding in a Wholly
owned Subsidiary among shareholders

30. CONDITION FOR LISTING
(Rule 19 (2) (b) of SCR Rules)
1. At least 10 per cent of securities issued by a company was
offered to the public through advertisement & following
conditions were fulfilled:
(a) minimum 20 lakh securities was offered to the public;
(b) the size of the offer to the public ≤ Rs. 100 crores ;
and
(c) the issue was made only through book building
allocation of 60 % of the issue size to QIBs
2. It shall offer at least 25 % of each class to the public
through Advertisement & Shares applied in
pursuance of such offer were allotted

31. LISTING UNDER CL. 8.3.5.1 OF
DIP GUIDELINES
EXEMPTION FROM CONDITION OF RULE 19 (2) (b)
 Listed Company merging with Unlisted
Company.
 In case of a demerger of a Listed
Company,the Resultant Company to get
the benefit of listing.

32. Exemption u/c 8.3.5.1 of DIP Guidelines
Cont….
CONDITIONS FOR AVAILING EXEMPTION
 Shares have been allotted by the unlisted company (transferee-
company) to the holders of securities of a listed company (transferor-
company) pursuant to a scheme of reconstruction or amalgamation under
the provision of the Companies Act, 1956, and such scheme has been
sanctioned by the High Court/s of Judicature.
 The listing of the shares of the unlisted transferee-company is in terms
of scheme of arrangement sanctioned by the High Court/s of the
Judicature.
 At least 25% of the paid-up share capital, post scheme, of the unlisted
transferee-company seeking listing comprises shares allotted to the public
holders of shares in the listed transferor-Company.

33. Exemption u/c 8.3.5.1 Cont….
The unlisted company has not issued/reissued any
shares, not covered under the scheme.
There are no outstanding warrants /instruments/
agreements which gives to any person to take the
shares in the unlisted transferee company at any
future date.
That the shares of the transferee-company issued in
lieu of the locked-in-shares of the transferor-company
are subjected to the lock-in for the remaining period.

34. Exemption u/c 8.3.5.1 Cont….
 Promoters‟ shares shall be locked-in to the extent of 20% of the
post merger paid-up capital of the unlisted company, for a
period of 3 years from the date of listing of the shares of the
unlisted company.
 The balance of the entire pre-merger capital of the unlisted
company shall also be locked-in for a period of 3 years from the
date of listing of the shares of the unlisted company.
 The Company shall give an advertisement in one English and one
Hindi newspaper with nationwide circulation and one regional
newspaper with wide circulation at the place where the
registered office of the company is situated, giving details as
specified in Schedule XXVIII.

36. ISSUES……
 Whether Demerger & Merger are possible in one
scheme?
 One of the pre - condition of Inter-se transfer
is transferor & transferee should be holding
shares for three years. What is the status of
shares held in the Resultant Company? Whether
the three years condition will be deemed to be
fulfilled in case the transferee & transferor are
holding shares since last 3 years in the
demerged company?

38. Morarjee Goculdas Spg. & Wvg. Co. Ltd. (MGC)
-Demerger Scheme-
i. MGC was engaged in two
separate business:
• Real Estate Development
FACTS • Manufacturing of various
kind of fibers & fabrics
ii. The two businesses were
quit distinct - it was desired
to segregate the two.

39. Salient Features of the Scheme
• Before merger MGC transferred its complete Textiles Business to MTL in lieu
of which MTL allotted shares to a SPV, MGC Shareholders Trust. MGC changed
its name as Morarjee Realty Ltd. (MRL)
•. The investment by MGC (Now MRL) in MTL was distributed among the
shareholders of MGC in the ratio of 10:21.
•. The equity shares in MTL held by MGC Shareholders Trust was also
distributed among the shareholders in the ratio of 1:25, free of cost
•. The Preference shares held by MGC Shareholders Trust were also offered to
the shareholders at a discounted price.
•. The new shares received by the shareholders of MGC (MRL) got listed on
BSE & NSE under the provisions of Clause 8.5.3.1 of SEBI (DIP)Guidelines in
exemption of Rule 19 (2) (b) of SCRR.
• Through the same scheme MTL reduced its share capital by 80% to wipe-out
the past losses and hence cleaned up its balance sheet.

40. Benefits achieved……..
• Two unrelated businesses were separated to make it possible
to determine the Industry of the Company. It is desirable to
attract Industry specific investors.
• The shareholders received shares to two listed entities with
separate business profile, thus, providing better valuation &
liquidity.
• There was no tax implication in the hands of the companies
involved or the shareholders.
• It also helped MTL to wipe out past losses, making the balance
sheet clean and attractive. No loss of carry forward of past
losses.

41. Financial Benefits to Shareholder
Particulars Amount (Rs.) Amount
as on 24th March (Rs.) as on
2005 26th May 2006
Value of the shares held 100 @55
by a shareholder as on shares
record date (5th 5500
Jan,2004) (A)
Shares in MRL 100 @125 @694
shares
12500 69400
Shares in MTL 51.5 @80 @100
shares
4,120 5,150
Total (B) 16,620 74550
Net benefit (B-A) 11,120 69,050

42. Reliance Industries Limited
- A Unique Scheme of Arrangement-
PRE –ARRANGEMENT SCENARIO
Reliance Industries Limited was
engaged in various businesses:
(i) Coal based power business;
FACTS (ii) Gas based power business;
(iii) Financial services business;
(iv) Tele-Communication business

43. RIL… demerger
The family arrangement aims at
Segregation between the two Ambani Brothers
Provision for Specified Investors was made:
 Holdings of RIL and other companies in the control
of Mr. Mukesh Ambani were transferred to a wholly
owned subsidiary, Reliance Industrial Investments
and Holdings Limited (RIIHL) along with a Private
Trust (Petroleum Trust).
 RIIHL and Petroleum Trust were described as
“Specified Investors” which renounced their rights
in the scheme itself.

44. RIL… demerger
As a result of demerger the shareholders of Reliance
Industries Ltd. other than “Specified Investors” got one
share each in the following four resulting companies for
each share held in RIL as on the record date:
 Reliance Energy Venture Ltd. (REVL)
 Reliance Communication Venture Ltd. (RCOVL)
 Reliance Capital Venture Ltd. (RCVL)
 Reliance Natural Resources Limited (RNRL)
The shares of all these resulting companies got listed on
the stock exchanges under the provisions of Cl 8.5.3.1
of the SEBI (DIP) Guidelines.

45. Benefits achieved……..
Particulars Amount Amount
(Rs.) (Rs.)
24th March 2006 26th May 2006
Value of the shares held 100 shares @928
by a shareholder as on
record date (25th 92800
Jan,2006) (A)
Shares in RIL 100 (@708) 70800 (@950) 95000
Shares in REVL 100 (@38) 3800 (@37) 3700
Shares in RCOVL 100 (@290) 29000 (@270) 27000
Shares in RCVL 100 (@24) 2400 (@23) 2300
Shares in RNRL 100 (@23) 2300 (@27) 2700
Total 108300 130700
Net benefit 15500 37900

46. REDUCTION OF CAPITAL

47. Types of Reduction of Capital
Writing off Losses & Fictitious Assets
Correction of Over- Capitalization
Distinguishment of the Liability in respect of
unpaid portion of face value.
Distribution of accumulated profits by
Payment to shareholders a part of share
capital.

48. Reduction of Capital- A Strategic Step
To Clean-up the Balance Sheet
To rationalize the capital base
Revival of Sick Company

49. RESTRUCTURING STRATEGIES
What's
Your
Move??

50. FEW STRATEGIC MOVES
Strategy I Strategy II
LISTING RAISING
(Without PROMOTERS‟
offer to HOLDING
Public)
(Beyond 55%)

51. FEW STRATEGIC MOVES..contd
Strategy III Strategy IV
ACQUISITION
CLUBING
OF LISTED
OF
CO.
RESOURCES
(Exemption from
Takeover Code) (Without raising
Capital)

52. Strategy I LISTING
Direct listing is costly & complicated
But Listing of Company provides for…..
Unlock value of business
Brings liquidity
Attract investors for further growth

53. LISTING THROUGH MERGER
Strategy IA
 Small/loss making listed companies are selected by
unlisted strong companies
 Unlisted company is merged with listed company with
maximum possible shares to promoters of unlisted
Company
 Promoters of Unlisted Company get shares in a listed
entity

54. LISTING THROUGH MERGER
Strategy IB
Merger of
Acquisition of financially sound
Regional Listed unlisted co with
Company(RSE) listed co
INDONEXT LISTING
Now your Company
is ready for Listing
DIRECT LISTING

55. RAISING PROMOTERS‟ HOLDING
Strategy II
Revised provisions of SEBI Takeover Code does not allow
promoters to acquire even a single share beyond 55%
Specific exemption to Merger/Demerger
 An Unlisted company is created by Promoters
This entity is merged with listed company
 Promoters‟ holding is raised up to 75%

56. ACQUISITION OF LISTED COMPANY
Strategy III
SEBI Takeover Code does not allow acquisition of shares
of a listed company beyond 15% or Change in Control by
any outsider without a PA
Specific exemption to Merger/Demerger
 An Unlisted company is created by Acquirer
This company is merged with listed company
 Acquirers‟ holding may go up to 75% of increased
capital base
The Management may also change.

57. CLUBING OF RESOURCES
Strategy IV
Basic purpose of merger is to Synergy of Resources, but
the it also increases the capital base
High capital base make servicing of capital difficult
 Proposed transferee company acquires shares in
transferor company
Companies are merged
 Crossholdings get cancelled
Resources got clubbed, capital base remain low.
Effectively , increases EPS.

58. To sum up……
Restructuring offers tremendous opportunities
for companies to grow & add value to the
shareholders
It unlocks the true potential of the company
It is a Strategy for Growth & Expansion
It also helps in Cleaning up &
create Synergy of Resources

59. To sum up……
It is the Company Secretary in the organisation
who has to take proactive steps
from suggesting roadmap to the company
till its implementation
to achieve the underlined
objectives of restructuring

60. Thanks a lot…
Pavan Kumar Vijay
Past President, ICSI