Preface: The companies made default in honouring the financial liabilities to the Banks, Financial Institutions etc, are usually declared as insolvent by the NCLT Order and the Corporate Insolvency Resolution Process starts by appointing the Insolvency Resolution Professional. Such companies are open for sale by the Committee of Creditors (“COC”) constituting Banks / Lenders of such companies to the potential buyers in the market.
Benefits: Acquisition of companies under Corporate Insolvency Resolution Process (“CIRP or Insolvency Process”) administered by the National Company Law Tribunal (“NCLT”) as per the provisions of I&B Code, 2016 (“Code” or “IBC”). Code / IBC is the Act / Legislation passed by the Parliament in the year 2016 as Insolvency & Bankruptcy Code, 2016.
Direct Tax Issues:
|Section 41(1) & 28(iv)||Taxability of write back of loans||favourable|
|Section 115JB||Applicability of MAT provisions||neutral|
|Section 79||Implications of change in shareholdings on carry forward of tax-losses||favourable|
|Section 50CA & 56||Difference of shares issue price & fair value – to lenders for consideration||neutral|
|LODR||• Role & responsibilities of BoD with IRP or RP
• Shareholders’ approval for transactions with related parties or for disposal of material subsidiary done away with if disclosed to stock exchanges.
• Relaxation from reclassification of existing promoter or promoter group.
• Schemes not to require SEBI & stock exchanges approval
|ICDR||Listed entities with approved resolution plans:
• Exemption from preferential issue procedure for equity shares and convertible securities.
• Lock-in restrictions still apply
|Takeover Code||Acquisition pursuant to resolution plan:
• Exemption from open offer
• Acquirer can hold more 75% in a listed entity
|CSRR||Due to implementation of resolution plan, if public shareholding falls:
• Below 25%: Increase to 25% within 3 years
• Below 10%: Increase to at least 10% within 18 months
|Delisting||Listed entities with approved resolution plans:
• Exemption from delisting regulations if specific procedure for delisting is laid and exit option to existing public shareholders at a price not less than liquidation price
• No tenure restriction to re-apply for listing
|Section 53 – Prohibition on issue of shares at discount||• Section 53 of the Companies Act, 2013 prohibits a company to issue shares at a discount.
• However, an exemption has been provided in this respect when shares are issued to creditors at a discount, on conversion of their debt into shares in pursuance of any statutory resolution plan or debt restructuring scheme specified by RBI or specified under the Banking (Regulation) Act, 1949.
|MCA circular for deemed shareholders approval – dated 25 Oct 2017||• Approval of shareholders/ members for implementation of resolution plan deemed to be received on approval by NCLT|
|OL, RD, ROC approvals required ?||• No separate approval/s required.|
|Stamp Duty aspects:||No specific exemptions given for the payment of stamp duties as may be applicable on acquisition of companies under CIRP.|
IBC is still an evolving legislation and getting mature with every new Judgement of Hon. Supreme Court, High Courts, NCLAT & NCLT. The purpose of introducing IBC was to clear the NPAs & give a fresh start to the Indian industry by keeping aside the defaulters & providing opportunities to better marker players by acquiring the insolvent companies under CIRP as clean companies irrespective of their old defaults & non compliances.
Under the IBC regime the efforts have been made to resolve the NPA issues by giving considerable relaxations to the new acquirers of such defaulting companies as described in above paragraphs & to create a smooth environment to deal with challenges of creating value for the nation as well as for the new acquirers.
It is observed that smart players are taking advantage of this new regime to create values & the success stories of Ruchi Soya Industries (acquired by Patanjali of Shri Ramdeo Baba) & Alok Industries (acquired by Reliance Industries along with JM Financials) and many more resolutions have been taking place.
Hence, potential acquirers along with other parties as consortium / JVs may come up & take advantage the IBC regime to create substantial values for the nation & corporates.
Views in this academic note are personal & only for the academic interest & not to be treated as any kind of legal advice to any person.