DEMERGERS & REVERSE MERGERS- VII

DEMERGER

Reliance Capital Ventures Ltd

Reliance Natural Resources Ltd

Demerger Not expressly defined in Companies Act 1956 Indirect refrence u/s 293(1)(a)
Sale,lease or otherwise dispose of The whole of the undertaking of company or Substantially the whole of the undertaking or If it own more than one undertaking, of the whole or sudstantially the whole of such undertaking.

Demerger & Reconstruction

Demerger means transfer, pursuant to section 391-394 of Co. Act 1956 by Demerged co.
Of its one or more undertaking to a new co. known as Resulting co This way demerged cos. property/liabilities Becomes the property/liabilities of resulting company. Shareholders holding not less than 3/4th in value of share in demerged co. become shareholders of resulting com. The transfer is on going concern basis

Reconstruction
A new co.( transfree co.) is formed Existing co.(transferor co.) is dissolved by passing SR for members winding up. Business/assests/liabilities are transferred to transfree co. Transfree co. issues and allots its shares to the shareholders of transferor co. in predetermined exchange ratio.

Forms of Demergers
Divestitures : sale of a segment of company to outsider for cash/securities. Spin off : holding co. distributes its owns in controlled subsidiary co. to its shareholders on pro-rata basis. As a dividend in non cash form. Equity carved out: only some shareholding of subsidiary co. is sold out to public and parent co. continue to hold control over subsidiary co. Split off : shareholders of parent co. get share in the subsidiary co. in exchange of their shares in parent co. Split up: parent co. ceases to exist and divided into two parts.

Types of Demerger
PARTIAL DEMERGER Part of undertaking/division of existing co. is separated and transferred to new co. existing co remains in existence Formed substantially same shareholders COMPELETE DEMERGER Existing co. is dissolved by passing SR All division are transferred to new co.

shareholders of dissolved co. are issued shares in new co. in predetermined exchange ratio.

Three Ways of Demerger

By agreement between promoters With approval by court u/391 Voluntary winding up Res Judicata If scheme is already rejected by court, same person having substantially the same scheme can not apply again.

Steps to be taken for Demerger

Prepare the scheme in consultation with all interested parties. Approved in principle by BOD Appoint an expert to determine exchange ratio.