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Conversion of widely held co. into private co.

Rajneet (Manager) (34 Points)

29 January 2014

Dear Friends,

Need your expert advice on a query. A delisted entity has made buy back offer to buyout public shareholding as per prescribed provisions but still there are 1000s of shareholders in the Company who have not availed the buyback offer. Now, the Company desires to convert itself into a Private Company.

My question is what is the possible and legal wayout to convert the company into private with shareholders exceeding the maximum allowed in private company. How to reduce no. of shareholders. Is there any power with ROC / CG to approve conversion of such an entity.

Thanks,

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4 Replies

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 29 January 2014

You can prepare a scheme of arrangement and get it approved by High Court u/s 391/392 of Companies Act 1956. The scheme may provide for compulsory buy back of public shareholding with proper justification. In such a situation you will not be required to follow Section 77A.

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Rajneet (Manager) (34 Points)
Replied 29 January 2014

Dear Sir

Thanks for your advice. Can you pls guide what can be the justification for compulsory buy back and if you have any drafts for reference, would really help.

Thanks

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 29 January 2014

I do not have draft scheme as such. You will have to engage some professional for discussing the issue in detail and drafting the scheme. Advocate will have to be engaged for appearing in High Court. The scheme could probably also cover conversion of the company into private company, adoption of new set of articles and change of name of the company. Justification for such conversion may be given to show how it is in the interest of the company.

This is just a broad idea. You can discuss it with some professional in detail about feasibility of the same.

Thanks