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Corporate Law Update

13 January 2017

Amendments in SEBI Regulations with regards to the regulatory framework involving merger of listed Companies:

Securities and Exchange Board of India (‘SEBI’) in its meeting dated January 14, 2017 at Jaipur, announced several decisions including the one related to protecting the interest of public shareholders, streamlining and strengthening the regulatory framework w.r.t. the scheme of arrangements. A gist of the proposals approved are summarized hereunder:

  • In case of merger of ‘very large unlisted companies’ with very small listed companies, the holding of pre-scheme public shareholders of the listed company and the Qualified Institutional Buyers (QIBs) of the unlisted company, in the post scheme shareholding pattern of the “merged” company shall not be less than 25%. However, the concept of ‘very large unlisted companies’ and very small listed companies has not been defined.
  • To improve the disclosure standards, an unlisted company merging with a listed one would have to comply with the requirement of disclosing material information as specified in the format for abridged prospectus.
  • An unlisted company can be merged with a listed one only if it is listed on a stock exchange having nationwide trading terminals.
  • To prevent issue of shares to select group of shareholders as against all shareholders, the pricing formula as specified in the ICDR (Issue of Capital and Disclosure Requirements) norms must be followed.
  • To ensure wider participation of public shareholders, the requirement to obtain their approval through e-voting has been extended to the following cases:
    • schemes involving merger of an unlisted company resulting in reduction in the voting share % of pre-scheme public shareholders by over 5 per cent of total capital of merged entity;
    • schemes involving transfer of whole or substantially the whole of the undertaking of a listed company and consideration for such transfer not in the form of listed equity shares;
    • schemes involving merger of unlisted subsidiary with listed holding company where the shares of the unlisted subsidiary have been acquired by the holding company directly or indirectly from the promoters/promoter group.
  • Companies shall be required to submit compliance report confirming compliance with the circular and Accounting Standards duly certified by Company Secretary, CFO and Managing Director.
  • The schemes involving merger of a wholly-owned subsidiary with the parent company shall not be required to be filed with SEBI. Such schemes shall be filed with stock exchanges for the limited purpose of disclosures only