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BY-

VARENDYAM JAHNAWI TIWARI


RESEARCH SCHOLAR AND TEACHING
ASSISTANT
(FACULTY OF LAW)
NATIONAL LAW UNIVERSITY, JODHPUR
The PPT is an original work of the author with help of online sources not reviewed in
the PPT. The PPT is only meant for teaching purpose and for the students. Students
are not supposed to circulate or copy the same for any other use than intended without
the authors permission.
SOME BASIC CONCEPTS


COMPROMISE
Amicable settlement of differences by mutual
concession by the parties to dispute or difference by
agreeing not to try it out. In,
[Mercantile Investment & General Trust Co. v. International Co. of Mexico]
[1893] 1Ch.484 & In re N.F.U Development Trust Ltd. [1971] 1 WLR
1548- {It has been held that compromise pre-supposes existence of a
dispute}.
[Dani Chand & co. v. Narain Das & Co.] (1947) 7 Comp. Cas. 195 F.B-
{For compromise it is essential that each party should be empowered
to make necessary concessions (adjustments)}.
ARRANGEMENT

Explanation to S.230 [2013 Act] & [S.390 (b) 1956 Act] - provides that the expression
arrangement includes a reorganisation of share capital of the company by
(combining) i.e. consolidation of shares of different classes (merger/amalgamation)
or by the division of shares (demerger) of different classes or by both the methods.

More wider than compromise. It includes arrangements which modify rights about
which there is no dispute.

Demerger or Merger have not been defined in the Companies Act. Thus, though
[S.230 Exp.] does not mention about demerger word directly but talks about
division of shares of different class which implies Demerger.

When a Co. has a dispute with a member or class of members or with a creditor or a
class of them, a scheme of compromise may be drawn up, but where there is no
dispute but there is a need of readjusting the rights or liabilities of a member or a
class of them or of a creditor or class of them, the Co. may resort to a scheme
arrangement with them.
COMPROMISE
ARRANGEMENT - DIFFERENCE

COMPROMISE ARRANGEMENT

When a Co. has a dispute with a Where there is no dispute but there
member or class of members or is a need of readjusting the rights or
with a creditor or a class of them, a liabilities of a member or a class of
scheme of compromise may be them or of a creditor or class of
drawn up. them, or to reorganise the share
capital of the Co. ; the Co. may
resort to a scheme of arrangement
with them.
CORPORATE RECONSTRUCTION

Restructuring as per Oxford dictionary means to give a new structure to, rebuild or
rearrange". As per Collins English dictionary, meaning of corporate restructuring is a
change in the business strategy of an organization.
Corporate restructuring is defined as the process involved in changing the organization of
a business. It implies rearranging the business for increased efficiency and profitability.
In other words, it is a comprehensive process, by which a company can consolidate its
business operations and strengthen its position for achieving corporate objectives-synergies
and continuing as competitive and successful entity.

NEED AND SCOPE OF CORPORATE RESTRUCTURING: - Objectives include the following:


Orderly redirection of the firm's activities;
Deploying surplus cash from one business to finance profitable growth in another;
Risk reduction; and
Development of core competencies.
CORPORATE
RECONSTRUCTION(Contd)

Two ways by which a business organization grows:
Organic Growth Inorganic Growth
No change in corporate entity. Growth is achieved by Occurs when the corporate entity adopts a growth
using internal sources & strength. strategy by relying on external sources and not its
inner strength.

OG may involve: IOG may involve:


Rationalisation ( when co. tries to remedy the Restructuring , M& A , Diversification
inefficiencies that exist within its structure) Innovative technology
Reconstruction when co. tries to winnow out existing Focus on Core Competencies
inefficient organs of a part of the co. Increased efficiency
Example: Enhanced customer base, increased revenue To achieve Synergy
Less resorted to in the present times slower to than IOG. These strategies are fast track hence more beneficial
and profitable than organic growth.
CORPORATE RESTRUCTURING
METHODS

DEMERGER
SLUMP SALE
MERGER
AMALGMATION
ACQUISTIONS AND TAKEOVER
JOINT VENTURES
CORPORATE RESTRUCTURING
METHODS

DEMERGER

Demerger not defined in 1956/2013 Act but Explanation to S.390 (1956) &230 of
2013Act talk about division of shares. It has been defined in 2(19AA) of IT Act,1961.
Demerger - Arrangement where some part of one Co. is transferred to another Co.
which operates separately from Original Company. The corporation is split into parts
for purpose of different operations or different line of business.
It is a business strategy in which a single business is broken into components, either
to operate on their own, to be sold or to be dissolved.
The Co. from which the undertaking, assets and liabilities are transferred is the
Transferor Co. or the Demerged Co. and the Company to which it is transferred is
the Transferee or the Resulting Co.
The shareholders may be given shares in the resulting Co. or consideration.
Generally, the gains arising from a demerger are exempt from capital gains tax, while
those arising from a slump sale are not. [Section 47 of the Income Tax Act, 1961 under
subsection (vid)]. One of the benefits associated with demerger .
CORPORATE RESTRUCTURING
METHODS

SLUMP SALE
A slump sale is defined in Section 2(42C) of the IT Act,1961 and not in the Companies Act.
It means the transfer of one or more undertakings as a result of the sale for a lump-sum
consideration without values being assigned to independent assets and liabilities.
Suppose Co. ABC has three assets having value- A (of Rs. 10) , B (of Rs. 20) and C (of Rs. 30)
and it decides to sell these assets to Co. PQR for a lump sum consideration of Rs. 40 instead
of Rs. 60 (actual value when independent values are assigned to these assets) then it is a
slump sale.

AMALGAMATION
Amalgamation is defined in Section 2(1B) of the IT Act,1961 and not in the Companies Act.

It means - two or more existing companies amalgamate and a new company is formed. As
such all existing companies amalgamating Co. disappears and a new company comes into
the existence.
Amalgamation is an arrangement, whereby the assets and liabilities of two or more
companies become vested in another company (which may or may not be one of the
original companies) and which would have as its shareholders substantially, all the
shareholders of the amalgamating companies.
CORPORATE RESTRUCTURING
METHODS

JOINT VENTURES

Joint ventures are new enterprises owned by two or more participants. They are
typically formed for special purposes for a limited duration.
It is a combination of subsets of assets contributed by two (or more) business
entities for a specific business purpose and a limited duration. Each of the
venture partners continues to exist as a separate firm, and the joint venture
represents a new business enterprise.
It is a contract to work together for a period of time each participant expects to
gain from the activity but also must make a contribution.
E.g.: -DCM group and Daewoo motors entered in to JV to form DCM
DAEWOO Ltd. to manufacture automobiles in India.
Section 2(6) of the Companies Act,2013 includes a Joint Venture Company in
the definition of associate company.
CORPORATE RESTRUCTURING
METHODS

Technically , no difference between the two terms - used interchangeably.

TAKEOVER ACQUISITION
Certain thresholds are prescribed for takeover A corporate action in which a company buys
under the Takeover Regulations,2011. most, if not all, of the target company's
ownership, stakes in order to assume control
Usually takeover is a hostile act in which an of the target firm. Acquisitions are often made
Acquirer alone or acting with Persons in as part of a company's growth strategy
Concert (PAC) acquires or agrees to acquire whereby it is more beneficial to take over an
voting rights , shares or control in the target existing firm's operations and niche compared
Company. to expanding on its own. Acquisitions are
often paid in cash, the acquiring company's
Shareholders are not given shares in the new stock or a combination of both.
company but paid consideration according to
an exit price. Usually if 50 percent or more stakes is gained
it may be said that the Co. has been acquired
and control can be exercised.
CORPORATE RESTRUCTURING
METHODS

MERGER
Combining of two or more companies whereby the identity of one or more is
lost and the result is a single enterprise. One company is taken over by the
other company and only the company taking over remains in existence.
Merger is restricted to a case where the assets and liabilities of the companies
get vested in another company, the company which is merged losing its
identity and its shareholders becoming shareholders of the other company.
There is mutual benefit that the merging companies realise in getting merged;
usually done by businesses in the same line to increase productivity, efficiency,
to achieve synergy and to diversify and may be to further some common
objective.
Explanation to S.232(8) talks about two kinds of Merger:
Merger by Absorption and
Merger by Formation of a New Company.
CORPORATE RESTRUCTURING
METHODS

MERGER BY MERGER BY
ABSORPTION FORMATION OF A NEW
COMPANY

Undertaking, property and liabilities of one or more Undertaking, property and liabilities of one or more
companies , including the company in respect of companies , including the company in respect of
which the compromise or arrangement is proposed which the compromise or arrangement is proposed
are to be transferred to another existing company. are to be transferred to a new company.

Example : If merging Companies are A,B,C then in Example: If merging Companies are A,B,C then in
merger by absorption; the equation will be A+B+C = merger by formation of a new company; the equation
A/B/C where A or B or C will remain in the end as will be A+B+C = D or ABC where D or ABC is he new
the final company in merger. If it is Company A it will company and not any of the existing companies that
absorb (B+C in itself) , if B (then A+C) and if C ( then mergerd.
A+B).