Corporate restructuring provisions under the Companies Act, 2013 notified and effective from today
The Ministry of Corporate Affairs has, vide a notification dated 7 December 2016 (Commencement Notification), notified certain provisions of the Companies Act, 2013 (Act) and has appointed 15 December 2016 as the effective date. Set out below is a summary of some of the provisions notified vide the Commencement Notification:
Compromises, Arrangements and Amalgamations
While most of the provisions under Chapter XV of the Act (Compromises, Arrangements and Amalgamations) have been notified vide the Commencement Notification, notably, section 234 which provides for merger or amalgamation of a company with a foreign company is yet to be notified. Key features of Chapter XV are as follows:
(i) Compromise or arrangement: Key changes in the provisions relating to compromise or arrangement under the Act are as follows:
(a) notices of meetings relating to compromise or arrangement are required to be sent to certain statutory authorities;
(b) pursuant to confirmation vide an affidavit by creditor(s) having at least 90 per cent value, the National Company Law Tribunal (NCLT) may dispense the creditors’ meeting;
(c) additional disclosures pertaining to corporate debt restructuring are to be made to NCLT;
(d) the scheme of compromise or arrangement may be approved by way of postal ballot;
(e) NCLT may provide for extending exit offer to dissenting shareholders;
(f) objection to a scheme of compromise or arrangement may be made only by persons holding not less than 10 per cent of the shareholding or having outstanding debt amounting to not less than 5 per cent of the total outstanding debt as per the latest audited financial statement; and
(g) a certificate by the company’s auditor certifying conformity with accounting standards is to be filed with the NCLT.
(ii) Purchase of Minority Shareholding: Per section 236 of the Act, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, majority shareholder(s) (holding at least 90 per cent of equity share capital) may, by notifying the company in this regard, buy the remaining equity shares from the minority shareholder(s) subject to certain conditions which inter alia include that value of shares is to be determined by a registered valuer as per prescribed rules.
(iii) Fast track merger/ amalgamation: Section 233 of the Act provides for fast track merger or amalgamation between 2 (two) or more small companies or between a holding company and its wholly-owned subsidiary or other specified companies. Resultantly, timeline and procedure for fast track merger or amalgamation is expected to reduce significantly. The broad steps in a fast track merger or amalgamation inter alia include:
(a) notice of the proposed scheme inviting objections or suggestions from the registrar of companies and official liquidators or persons affected by the scheme within 30 (thirty) days;
(b) approval of scheme in general meeting by concerned members holding at least 90 per cent of total number of shares and by majority representing 9/10th in value of creditors in a meeting or in writing;
(c) filing of declaration of solvency with the registrar of companies;
(d) filing of approved scheme with the central government, registrar of companies and the official liquidator; and
(e) registration of scheme by the central government.
Reduction of Share Capital
The Commencement Notification notified section 66 of the Act which provides for reduction of share capital. Per the said section, a company may reduce its share capital in any manner subject to certain conditions which inter alia include (i) confirmation by the NCLT and (ii) passing of special resolution in this regard.
Further, per section 66 of the Act, reduction of share capital would be permitted if (i) the company is not in default of repayment of existing/ fresh deposits or any interest thereon; and (ii) an auditor’s certificate certifying the conformity with prescribed Accounting Standards has been filed with the NCLT. Notably, section 66 of the Act does not provide a discretionary power to the NCLT to order addition of the words “and reduced” to the name of the company so reducing its capital.
Variation of Shareholders’ Rights
Pursuant to notification of section 48 of the Act, if variation of rights by one class of shareholders affects the rights of any other class of shareholders, a consent of three-fourths of such other class of shareholders is required for variation of shareholders’ rights and the provisions of the aforesaid section would apply to such variation.
Winding up by the NCLT
The Commencement Notification has notified relevant provisions of the Act pertaining to winding up by the NCLT, however, provisions relating to voluntary winding up are yet to be notified.
The Commencement Notification may be accessed at: