Business restructuring may be achieved by a variety of methods, such as, Merger, Demerger / Spin Off, Slump Sale, Acquisition of Shares, etc. Each method has its own pros and cons and must be selected keeping in mind the objectives to be achieved. While adopting a particular method, the following legal factors, wherever applicable, need to be considered, in addition to the commercial and financial justification:

• Income-tax impact on the Companies and their shareholders, e.g., capital gains on the transfer, set-off of losses and depreciation, transfer of deduction u/ss. 80-IA/IB, 10A/10B, cost of assets to the Transferee, etc.

• Stamp duty, e.g., levy, concessions, etc.

• Companies Act provisions

• Competition Law provisions

• SEBI Takeover Regulations and SEBI DIP Guidelines

• Listing Agreement provisions and procedural requirements

• FEMA and FIPB Policies

• Sales tax / VAT – transfer of Exemption Schemes and tax on the transfer of business

• Transfer of CENVAT Credit and Excise Registration

• Transfer of Licences under EPCG (Export Promotion Council Guarantee) Scheme, Project Import Regulations, etc.

• Transfer of tenancies under Rent Control Laws

• Labour law implications, e.g., Govt. permission for closure of a unit with more than 100 workers

• Permissions required under contractual agreements, e.g., lenders, Govt. Ministries in case of infrastructure / telecom projects, etc.

• Transfer of environmental licences

• Accounting implications of a particular method

• Examine whether a Forward Merger or a Reverse Merger is more beneficial : the factors to be considered are tax benefits, listing, etc.

• In case of a merger of a Listed Company into an Unlisted Company, the conditions and procedure specified in the SEBI Guidelines must be followed to enable listing of the shares of the Unlisted Transferee Company.

• Ensure that the Main Objects or the incidental objects of the Memorandum of Association contain the power to amalgamate.

• Ensure that the Scheme does not violate, override or circumscribe the provisions of securities laws or the stock exchange requirements.

• Consider whether the merger would be a merger considered to be a ‘Combination’ under the Competition Act, 2002 and hence, one which requires the permission of the Competition Commission.

• Valuation of shares for fixing the Share Exchange Ratio

• Convene a Board Meeting for approving the Scheme of Amalgamation.

• Obtain the consent/approvals, if any, required prior to the merger.

• Prepare the Scheme of Amalgamation and Explanatory Statement.

• The Explanatory Statement forwarded must disclose the pre and post-merger capital structure and shareholding pattern.

• File the scheme/petition proposed to be filed before the Court or Tribunal with the Stock Exchanges, for their approval, at least a month before it is presented to the Court or Tribunal. Listed companies must also submit to the stock exchange, an auditors certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.

• Receive the approval of the Stock Exchange.

• Apply to the High Court / National Company Law Tribunal in Form Nos. 33 and 34.

• Send a copy of the Application to the ROC within 30 days.

• Send the Notice (in Form No. 36) convening the General Meeting to every member and creditor as directed by the Court along with the Explanatory Statement and Form of Proxy (in Form No. 37). Ensure that the Notice reaches the member at least 21 days before the date of the GM.

• If the Court directs give an advertisement of the notice meeting (Form 38).

• Hold the Meeting and pass Resolutions approving the Scheme.

• File the Report of the Meeting’s Chairman (in Form No. 39) with the Court.

• Prepare a Petition in Form No. 40 for obtaining the Court’s sanction to the Scheme.

• At least 10 days before the date fixed by the Court for the hearing of the Petition, advertise the date of hearing.

• Obtain the Official Liquidator’s Report.

• Receive the Court’s Order sanctioning the Scheme.

• File a copy of the Order of the Court with the ROC within 30 days from the date of receipt of the Order.

• Allot the securities to the shareholders of the Transferor Company.

• Attach a copy of the Court Order with every copy of the Memorandum and Articles of Association.

The Merger Scheme/Scheme of Amalgamation must cover the following:

1. Definitions of important terms such as Appointed Date, Effective Date, Record Date for issue of shares, etc.

2. Background, capital, history, etc. of the Transferor and Transferee Company.

3. Rationale of the Scheme.

4. Accounting Treatment in the books of Transferor and Transferee.

5. Cancellation of shares or Transfer of shares to trust if, the shares of the Transferor Company are held by Transferee Company

6. Amalgamation of Transferor with Transferee Company and vesting of its undertaking, assets and liabilities in the Transferee Company. Reduction of capital, if any, of the Transferee.

7. Issue of securities, etc. by Transferee to shareholders of Transferor, Share Exchange Ratio, Valuation Report, etc.

8. Increase in Authorised Capital of Transferee, if required.

9. The Date from when the Scheme comes into operation.