Takeover in case of unlisted company under new regime

On 4th February 2020, MCA notified Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2020, bringing new regime for Takeover of Unlisted Company under Section 230 Sub-Section 11

As per Sub-Section 11, any compromise or arrangement may include Takeover offer in such manner as may be prescribed. Now MCA vide Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules,2020 has prescribed the modalities for such takeover.

It is important to know that comprise and arrangements can take place between the Company and its members or any class of them and between Company and its creditor or any class of them.

Compromise and Arrangement to be done through meeting called by NCLT on the application made by the Company or its member, or class of them or any creditors or class of them, as the case may be, or Liquidator appointed under Companies Act, 2013 or Insolvency and Bankruptcy Code. 2016. Meeting to be conducted in such manner as may be directed by the tribunal.

Now coming back to the newly notified rules i.e. Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2020, hereinafter called a new rule. New rule amend the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, hereinafter called as an existing rule.

The new rule adds in Rule 3 of existing rules two new sub-rules i.e. sub-rule 5 and 6 after sub-rule 4. These sub-rules explicate the process of a takeover under the scheme of compromise and arrangement as specified in Sub Section 11 of Section 230.

Newly inserted Sub Rule 5 spells out the conditions under which members or class of members who are making compromise and arrangements can make a takeover of the company under the scheme of compromise and arrangements.

Member or members making a bid for takeover shall already hold at least 75% of shares in the company. Such a bid should be for acquiring any remaining part of the shares of the Company.

Shares here include any securities carrying voting right, for example, GDR or ADR with voting right. Further explanation 2 clarifies that these rules shall not apply in a case where such transfer is done by way contract (Example Purchase Deed, Gift Deed, etc.) arrangement or succession, as the case may be, or any transfer made in pursuance of any statutory or regulatory requirement

Sub-Rule 6 tells about documents to be provided with the application to NCLT for the arrangement for takeover offer shall contain

- Valuation Report from Registered Valuer in respect of shares proposed to be acquired by the member after considering the following factors.

• the highest price paid by any person or group of persons for the acquisition of shares during the last twelve months;
• the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including

- Return on net worth, the book value of shares, earning per share, price earning multiple vis-a-vis the industry average, and such other parameters as are customary for valuation of shares of such companies.