Demystifying Takeover Code
-
Upload
pavan-kumar-vijay -
Category
Business
-
view
2.126 -
download
0
description
Transcript of Demystifying Takeover Code
![Page 1: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/1.jpg)
:
DEMYSTIFYING TAKEOVER CODE
Pavan Kumar Vijay
![Page 2: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/2.jpg)
KEYWORDS IN TAKEOVER CODEWhen an
"acquirer" takes over the “shares” or “control” of
the "target company",
it is termed as Takeover.
When an acquirer acquires "substantial quantity of shares or voting
rights" of the
Target Company, it results into substantial acquisition of
shares.
![Page 3: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/3.jpg)
AKEOVER
SHARES
CONTROL
BOTH SHARES & CONTROL
Acq
uisition
LIFTING THE VEIL
![Page 4: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/4.jpg)
UNDERSTANDING SHARES Reg 2 (k)
REG 2(k)
Shares carrying voting rights & any security which would entitle to receive shares with voting rights
in future But shall not include PREFERNCE SHARES
ISSUE
What is the status of partly paid shares under SAST Regulations, 1997?The partly paid up shares are also shares under Takeover Code as voting rights is embedded in partly paid up shares.
![Page 5: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/5.jpg)
UNDERSTANDING CONTROL
REG 2(c)
“
Control is the right to
Appoint majority of the directors
To control the management
Control the policy decisions
By virtue of Shareholding or Management rights or Shareholders Agreements or Voting Agreements or in any other manner.
![Page 6: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/6.jpg)
THRESHOLDS DEFINED
FOR COMPLIANCE
Acquisition of more than 5%, 10%, 14%, 54% & 74%
[Regulation 7]
Persons, who are holding between 15% - 55%,
acquisition/ sale aggregating more than 2% or more voting
rights [Regulation 7(1A)]
![Page 7: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/7.jpg)
THRESHOLDS DEFINED
FOR OPEN OFFER
Acquisition more than 15% or more voting rights [Regulation
10]
Persons, who are holding between 15% - 55%,
acquisition more than 5% or more voting rights in a
financial year.[Regulation 11(1)]Persons, who are holding
more than 55%, acquisition of single share or voting right
[Regulation 11(2)]
![Page 8: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/8.jpg)
INTER – SE TRANSFER
Reg 3(1)(e)
An Insight
![Page 9: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/9.jpg)
Legal Insight: Inter-se Transfer
• REGULATION 3(1)(e) OF SEBI (SAST) REGULATIONS,
1997 GOVERNS THE ACQUISITIONS THROUGH INTER
SE TRANSFERS. • EXEMPTION FROM APPLICABILITY OF
REGULATION
10,11 & 12 i.e. REQUIREMENT FROM MAKING
PUBLIC OFFER.
![Page 10: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/10.jpg)
Categories for Inter-se transfer
Categories
Group under MRTP Act,
1969
Relatives under
Companies Act, 1956
Qualifying Promoters
Acquirer & Persons acting in concert
![Page 11: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/11.jpg)
DETAILED ANALYSIS
![Page 12: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/12.jpg)
Category I – Inter-se Transfer amongst Group
Main Features Group here is signifying the group as
defined under MRTP Act, 1959.
Another important feature is where persons
constituting such group have been shown as
group in the last published Annual Report of the
Target Company.
![Page 13: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/13.jpg)
Category I – Group… contd
Definition of Group
SECTION 2(ef) OF MRTP ACT, 1969 DEFINES GROUP INTO TWO PARTS:
Associated Persons
Group of persons having control without exercising controlling
interest.
Associated persons such as relatives of director of a company, partner of a firm & any trustee in relation to a trust.
Any associated person in relation to associated person.
-
Two or more Individuals, AOI, firms, trusts, body
corporates who are in the position to exercise control
, whether directly & indirectly over any body corporate, firm or trust.
![Page 14: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/14.jpg)
Category II – Inter-se transfer amongst relatives
Main Features
Relatives under this regulation means the
Relatives defined under Section 6 &
Schedule 1A under Companies Act, 1956.
The definition of relative u/s 6 includes
Spouse
Members of HUF
Relative mentioned in Schedule 1A.
Schedule 1A gives a list of 22 persons.
![Page 15: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/15.jpg)
Qualifying Indian
Promoter & Foreign
Collaborators, who are shareholde
rs.
Category III – Inter-se transfer for Qualifying Promoters
Qualifying Promoters
Category III – Promoters… contd
![Page 16: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/16.jpg)
Category III – Promoters… contd
Qualifying Promoters - Defined
Any person whoDIRECTLY OR INDIRECTLY
is in control of the company
Who is named as Promoter in any
Offer Document OR Shareholding
Disclosure, Whichever is
later
& includes….
![Page 17: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/17.jpg)
When person is individual
His relatives as Defined u/s 6 of Co.
Act 1956.Any company
controlled by P/R
Firm or HUF in which P/R is partner or
coparcener ;stake not < 50%
When person is body corporate
Holding & Subsidiary
Any company controlled by P/R
Firm or HUF in which P/R is partner
or coparcener ; stake not <
50%
Category III – Promoters… contd
![Page 18: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/18.jpg)
Category III – Promoters… contd
Category IV – Acquirer and Persons acting in concert.
ACQUIRER
Reg 2(b)
PAC Reg2(e)
Exemption available only after 3 years from the date of closure of open offer
made under these Regulations.
![Page 19: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/19.jpg)
Pre- Conditions for availing Inter- se transfer.
Conditions Category I(Group)
Category II(Relative)
Category III
(Qualifying
Promoter)
Category IV
(Acquirer & PAC)
i. Transfer is at a price > 25% of the price
determined in terms of Reg 20(4) & 20(5) of SEBI (SAST) Regs, 1997.
N N Y Y
ii. 3 yrs holding of shares by transferee & transferor.
N N Y N
iii. Compliance of Regulation 6, 7 & 8.
Y Y Y Y
![Page 21: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/21.jpg)
Checks & Balances under Regulation 3
C
O
M
P
L
I
A
N
C
EReg 3(3) Reg 3(4) Reg 3(5)
Advance Intimation (4 days in Advance)
Report
(21 days of acquisition)
Stock Exchange
SEBI
SEBI
Fees to be accompanied with Report
(Rs 10000
25000)
![Page 22: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/22.jpg)
Checks & Balances under Regulation 7
Acquirer : Compliance of regulation 7(1) or 7(1A)
Seller: Compliance of regulation 7(1A)
Target Company:Compliance of Regulation 7(3)
![Page 24: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/24.jpg)
Taxation Issues..contd.
Securities Transaction Tax
Securities Transaction Tax
LTCG/STCGLTCG/STCG STT is levied when the transfer
is
made through stock exchange.
STT is @ 0.125% of the sale value.
LTCG/STCG is levied when the
transfer is made in off market
mode.
LTCG –
20% with indexation benefit on
the amount of capital gain .
10% without indexation benefit on
amount of capital gain .
STCG –
10% on the amount of capital gain.
A Comparative Study
![Page 25: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/25.jpg)
INTER- SE TRANSFER : A STRATEGICAL MOVE
INTER- SE TRANSFER : A STRATEGICAL MOVE
Good means for
consolidation of holdings in a Company.
![Page 26: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/26.jpg)
INTER- SE TRANSFER: Clause 40A INTER- SE TRANSFER: Clause 40A
Regulation 3(1A)
“Nothing contained in sub-regulation (1) shall affect the applicability of the listing requirements.”
Effect of Regulation 3(1A)
The above-mentioned regulation is giving the effect that the exemption under regulation cannot exceed the
provisions of listing agreement,i.e.the minimum public holding of 25% cannot be exceeded by the exemption of
Inter- se Transfer
![Page 27: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/27.jpg)
![Page 28: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/28.jpg)
MATTER OF DEBATE:
HELD:
Regulation 3(4) is applicable to all cases wherever the acquisition exceeds the limit prescribed in the regulations irrespective of the existing holding of the acquirer.
NAAGRAJ GANESHMAL JAIN V P.SRI SAI RAM, THE SAT
Whether Reporting under Regulation 3(4) is one time reporting?
![Page 29: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/29.jpg)
MATTER OF DEBATE:
HELD:
It was held that when the belated filing of the report under 3(4) does not resulted in any gain to the appellant & also no loss to the invested, the imposition of the penalty is not justified.
SAMRAT HOLDINGS V SEBI
Whether the belated filing of report should not be considered as commission of offence when there is no substantial loss to the investors?
![Page 30: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/30.jpg)
Inter-se transfer is a good tool forconsolidation of holdings…………..
However,the exemption is available subject to strict compliance of Regulation 3(3),3(4) & 3(5).
Concluding Remarks
![Page 32: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/32.jpg)
An issue by a company
Equity shares / Securities convertible into equity/
FCDs/Warrants/PCDs/
Convertible Preference Shares
pursuant to a resolution u/s. 81(1A) of Act, to any select group of persons by way of private placement.
Of
![Page 33: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/33.jpg)
BENEFITS
Simple way to raise capital of the Company
No need to appoint Merchant Banker.
Economical way to raise capital.
Minimum Formalities.
![Page 34: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/34.jpg)
The Companies Act, 1956
SEBI (Disclosure and Investor Protection) Guidelines, 2000 (Chapter – XIII & XIIIA)
Unlisted Public Companies (Preferential Allotment) Rules, 2003
SEBI (SAST) Regulations, 1997
Listing Agreement
GOVERNING LAW
![Page 35: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/35.jpg)
Allotment to QIBs (not in Promoter Group)
by companies listed on NSE / BSE
OTHERS
Chapter – XIIIA of SEBI (DIP) Guidelines
Chapter – XIII of SEBI (DIP) Guidelines
Proposed Allottees
![Page 36: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/36.jpg)
Time Line- Preferential Allotment
Relevant Date
30 days
General Meeting
Filing of applicatio
n of in-
principal approval
Despatch of
Individual Notices
25 days
15 days (12 months in case of QIBs)
Board Meeting
Allotment of
Shares
Shareholders’ Resolution must be
implemented within 15 days (12 months in case
of QIBs) except in case of pending regulatory
approvals
![Page 37: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/37.jpg)
Pricing Schedule
General Meeting
Relevant Date
30 days2 weeks
6 months
![Page 38: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/38.jpg)
QIBs Others
ExistingHolding
Preferential Allotment
ExistingHolding
Preferential Allotment
No Lock in For One Year, except in case
of Trading through Stock Exchange
For Six Months
PROMOTERS – 20% of Total Capital - for 3 YearsRemaining – for one Year
OTHERS – For One Year
Lock-in Requirement
![Page 39: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/39.jpg)
Currency of Security Convertible into Equity Shares
QIBs OTHERS
FCDs/ PCDs/ any other convertible Security –60
Months from the date of allotment
Warrants convertible into Equity Shares –
can’t be issued to QIBs
FCDs/ PCDs/ any other convertible Security –No
time prescribed for conversion
Warrants convertible into Equity Shares - 18 months from the date of allotment
![Page 40: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/40.jpg)
Preferential Allotment:- In- Principle & Listing
Process of identification of allottees.
Bank Statements
DIP Compliances – Pricing, Lock in ,
Identity
Clause 40A of Listing Agreement
Change in Management/Control
![Page 41: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/41.jpg)
Preferential Allotment viz-a-viz
Takeover Code
![Page 42: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/42.jpg)
Limit for Preferential Allotment
Limits are calculated taking into account the
EXPANDED CAPITAL of the Company
& not the EXISTING CAPITAL of the Company.
![Page 43: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/43.jpg)
Acquirer
(holding 20%)
Through Preferential Allotment
Acquirer’s holding cannot exceed 24.99% of Expanded Capital.
Illustration I
![Page 44: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/44.jpg)
Acquirer
(holding 5 %)
Through Preferential Allotment
Acquirer’s holding cannot exceed
14.99% of Expanded Capital.
Illustration II
![Page 45: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/45.jpg)
Illustration III
Acquirer
(holding 0%) Through
Preferential Allotment
Acquirer’s holding cannot exceed
14.99% of Expanded Capital.
![Page 46: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/46.jpg)
Category
Existing shares & %
Maximum Allotment in Preferential allotment.
Shares & % of
Expanded Capital
Non- Promote
r
0 14.99% 1764700(14.99% of
the Expanded Capital)
Present Capital= 1 cr
Expanded Capital=11764700
Example:
![Page 47: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/47.jpg)
What is the exact formula for calculating the % of shareholding, in case of issue of warrants? At what point of time, the number of warrants would be taken into account – on the day of issuing warrants or on the date of conversion of warrants into shares?
Queries
Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation
Query 1
Query 2
![Page 48: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/48.jpg)
What is the maximum limit of preferential allotment? Can a Company through preferential allotment expand its capital without any limit?
Queries
Query 3
![Page 49: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/49.jpg)
Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation? What, if, the same question arises in case the promoter is holding 60%? The issue is as there is acquisition of shares but such acquisition has not change the voting rights. The question is what is relevant in terms of takeover code, acquisition or voting rights?
Query 4
Queries
![Page 50: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/50.jpg)
Conclusion
To sum up… preferential allotment is becoming a buzz word these days…
However, it is subject to various checks & balances.
![Page 51: Demystifying Takeover Code](https://reader035.fdocuments.us/reader035/viewer/2022062319/5556b1e2d8b42a3f7e8b529e/html5/thumbnails/51.jpg)