Regulatory Framework on Schemes of Arrangements - Mergers and Demergers
Published: Jan 16, 2017
TIOLCORP News Service
MUMBAI, JAN 16, 2017: SEBI Board approved the proposals to revise and streamline the regulatory framework governing schemes of arrangement:
1. In case of merger of an unlisted company with a listed company:
a) With a view to improve the disclosure standards, the unlisted company, inter-alia, shall comply with the requirement of disclosure of material information as specified in the format for abridged prospectus.
b) The holding of pre-scheme public shareholders of the listed entity 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%. The objective is to have wider public shareholding and to prevent very large unlisted company to get listed by merging with a very small company.
c) Unlisted company can be merged with a listed company if it is listed on a stock exchange having nationwide trading terminals.
2. In order to prevent issue of shares to select group of shareholders instead of all shareholders pursuant to the scheme, SEBI clarified that the pricing formula specified under the ICDR Regulations shall be applicable in such cases.
3. To ensure larger participation of public shareholders, the requirement to obtain their approval through e-voting has been extended to the following cases:
a) The schemes involving merger of an unlisted company resulting in reduction in the voting share % of pre-scheme public shareholders by more than 5% of total capital of merged entity.
b) Schemes involving transfer of whole or substantially the whole of the undertaking of a listed company and consideration for such transfer is not in the form of listed equity shares.
c) 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 would be required to submit compliance report confirming compliance with the circular and Accounting Standards duly certified by Company Secretary, CFO and Managing Director. With a view to simplify the process, schemes which provide for merger of a Wholly owned Subsidiary (WoS) 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.
