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Demerger

Demerger. TYPES OF RESTRUCTURING. MERGER. DEMERGER. REDUCTION OF CAPITAL. Introduction. In the Corporate world, merger and demerger have become universal practices for securing survival, growth, expansion and globalization of enterprise and achieving multitude objectives.

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Demerger

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  1. Demerger

  2. TYPES OF RESTRUCTURING MERGER DEMERGER REDUCTION OF CAPITAL

  3. Introduction • In the Corporate world, merger and demerger have become universal practices for securing survival, growth, expansion and globalization of enterprise and achieving multitude objectives. • Merger is the fusion of two or more existing companies. • On the other hand, demerger signifies a movement in the company just opposite to merger.

  4. DEMERGER “Division of a Company with two or more identifiable business units into two or more separate companies ” SECTION – 2(19AA) of Income Tax Act, 1961.

  5. DEMERGER Reliance Capital Ventures Ltd Reliance Natural Resources Ltd

  6. TYPES OF DEMERGER • Listed Company demerging into two companies (both could be listed). • Listed Company is demerged into two companies and another unlisted entity is merging with the one of the demerged entity. • Distribution of shareholding in a Wholly owned Subsidiary among shareholders

  7. Case Studies

  8. Reliance Industries Limited - A Unique Scheme of Arrangement- • PRE –ARRANGEMENT SCENARIO • Reliance Industries Limited was engaged in various businesses: • Coal based power business; • Gas based power business; • Financial services business; • Tele-Communication business FACTS

  9. RIL… demerger • The family arrangement aims at • Segregation between the two Ambani Brothers • Provision for Specified Investors was made: • Holdings of RIL and other companies in the control of Mr. Mukesh Ambani were transferred to a wholly owned subsidiary, Reliance Industrial Investments and Holdings Limited (RIIHL) along with a Private Trust (Petroleum Trust). • RIIHL and Petroleum Trust were described as “Specified Investors” which renounced their rights in the scheme itself.

  10. RIL… demerger • As a result of demerger the shareholders of Reliance Industries Ltd. other than “Specified Investors” got one share each in the following four resulting companies for each share held in RIL as on the record date: • Reliance Energy Venture Ltd. (REVL) • Reliance Communication Venture Ltd. (RCOVL) • Reliance Capital Venture Ltd. (RCVL) • Reliance Natural Resources Limited (RNRL) • The shares of all these resulting companies got listed on the stock exchanges under the provisions of Cl 8.5.3.1 of the SEBI (DIP) Guidelines.

  11. Benefits achieved……..

  12. Reasons for Demergers • The first one as an exercise in corporate restructuring • 2. To give effect to a kind of family partitions. • 3. Growth

  13. Demerger V Reconstruction • Companies Act, 1956 does not define ‘demerger’ but covers ‘reconstruction’. The difference between these two terms lies only when a scheme of arrangement is framed for obtaining sanction of the court. • The company is required to pass special resolution which is subject to confirmation by the court by making an application under section 101 of the Companies Act, 1956. It is necessary that the AOA of the company should have a provision of reduction of its share capital in any way and its Memorandum should provide for demerger, division or split of the company in any way. Demerger, thus, resulting into reduction of company’s share capital would also require the company to amend its • MOA. • Reduction would in share capital occur with transfer of assets or repayments to departing faction or group of members of the promoters of the company. Section 390(b) of the Companies Act, 1956 interprets arrangement appearing in section 391 or 393 of the Companies Act, 1956 and covers the ‘division’ under the expression “arrangement”.

  14. Demerger can be done in following ways • Demerger by agreement between promoters; or • Demerger under the scheme of arrangement with approval by the court under section 391 of the Companies Act, 1956; • Demerger under vountary winding up and the power of liquidator.

  15. Procedure For Securing Approval • Board Approval • The proposal for sale, lease or otherwise disposing of an undertaking of a company, will be placed before • the Board of Directors of the Company for its consideration and approval[36]. The Board will pass the • Following resolutions: to approve the proposal ;to decide the date, time and place of the AGM; • to authorize the company and secretary/ director to issue notice of the general meeting • Intimation of Stock Exchange • In the case of a listed company, intimation of the Board’s decision will be given to all the Stock • Exchanges on which the company’s shares are listed, immediately after the Board on the same day. • Intimation of Stock Exchange • 3. Ordinary Resolution • A general meeting will be convened to pass necessary resolution • Sending Copies of notice to S.E • In the case of a listed company, three copies of the notice of the general meeting will be sent to all the • Stock Exchanges on which the company’s shares are listed, immediately after meeting on the same day

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