Tag: Mergers and Acquisitions

Bribery and Money-laundering Risk Management in M&A

As government agencies and regulators around the world are strengthening their enforcement efforts (having unearthed major bribery, corruption and money laundering related lapses by various corporates in the recent years), corporate activities have come under increased regulatory scrutiny. A target’s historical and existing anti-money laundering (AML) or anti-bribery, anti-corruption (ABAC) violations and resultant liabilities typically become the acquirer’s responsibility post-closing. This can have far-reaching legal, business and reputational consequences on the acquirer and in an extreme case, could result in an acquisition being a failure. As a result of this, acquirers have to be cognizant of not only any post-closing transgressions but also any pre-closing ones that they know, or ought to have known. The approach of a hurriedly-conducted limited due diligence with heavy reliance on warranties alone is therefore a risky one.
This note is divided into four parts – the first part provides a general overview of the key legislations. The second part highlights certain factors such as the target’s jurisdiction, sector, local laws and other cultural and geographical issues that typically influence such AML and ABAC issues. The third part outlines safeguards that are customarily adopted by the acquirers and the last part proposes certain measures that may be considered and implemented for effective risk-management by the acquirers.

Read More

One year of the CCI’s ‘Green Channel’ route for deemed approval of combinations

The Competition Commission of India (the “CCI”) recently commemorated the completion of the first year of the ‘Green Channel’ approval route for combination filings in India, by way of which, combinations which meet certain criteria are deemed to be approved upon filing a valid short form notification (Form-I) with the CCI. This unique approval route was introduced by the CCI with effect from 15 August 2019, for facilitating speedy clearance of transactions, and balancing the ease of doing business in India with appropriate regulatory oversight for such combinations. Since its introduction, almost one-fifth of the combinations notified to the CCI have availed of this route.
This note analyses certain issues relating to the implementation of this route, some of which have subsequently been addressed by the guidance issued by the CCI through its updated ‘Notes to Form-I’. While some issues remain to be clarified, it is hoped that going forward, these will be resolved through CCI’s further guidance and decisional practice, and facilitate a wider and more certain use of the deemed approval route.

Read More

Operational Creditors in Insolvency: A Tale of Disenfranchisement

This note attempts to explain the unique predicament of operational creditors under the Insolvency and Bankruptcy Code, 2016 (IBC). It examines the various factors considered by the judiciary in recent pronouncements that have shaped the status of the operational creditors and outlines solutions that could be considered for a constructive resolution of the issues at hand.
This note is divided into four parts – the first part discusses certain issues considered by the Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, and its key findings in this regard. In the second part, the authors highlight how the IBC and the ruling of the Supreme Court unfairly disadvantage operational creditors, and offer solutions in line with international practice. In the third part, the authors point out a lacuna in the IBC regarding the treatment of the claims of creditors with ‘disputed’ claims in an insolvency resolution process and propose an alternate framework to determine such claims. The last part underscores the key takeaways from this article and a few concluding thoughts.

Read More

Voluntary Delisting

The current situation caused by the COVID-19 pandemic is unprecedented and several listed companies have seen a reduction in their value due to the sharp fall in stock prices compared to the beginning of 2020. The recent weeks have also seen delisting announcements by certain widely held companies including those on the NIFTY-50 and subsidiaries of global corporations.
Voluntary delisting is essentially a strategic move where a promoter (controlling shareholder) of a listed company and the listed company seek to delist the shares from the stock exchanges in India and is primarily governed by the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, as amended (the “Delisting Regulations”).
This note discusses the legal framework and process for voluntary delisting under the Delisting Regulations and certain key issues involved in delisting.

Read More

Purchase Price Adjustments in Court Schemes

Price adjustments in M&A transaction documentation enable parties to align the consideration originally negotiated at signing to the facts and circumstances existing at closing. Such adjustments become particularly important when there is a protracted time gap between signing and closing, usually due to statutory and regulatory approvals, and in case of listed entities, volatility in the financial markets. Certain transactions are implemented through tribunal-approved schemes of merger, de-merger, etc. (“Schemes”). While Schemes offer certain advantages such as an exemption from takeover regulations in case of listed entities, price adjustments in such transactions are subject to greater scrutiny and constraints, given requirements for tribunal approval and in the case of listed entities, pricing requirements and review by stock exchanges and the securities regulator. This note sets out certain price adjustment mechanisms that could be considered by parties to Schemes involving listed entities.

Read More

Proposed Suspension of fresh initiation of Insolvency Proceedings for up to one year

As a part of a series of relief measures in response to the current pandemic situation, the Finance Minister of India has announced on May 17, 2020 a proposed suspension of fresh initiation of insolvency proceedings up to one year. In addition, it has been announced that the Central Government will be empowered to exclude COVID-19 related debt from the definition of “default” under the Insolvency and Bankruptcy Code, 2016, as amended. It is envisaged that an ordinance will be issued to give effect to such measures. This note considers certain points in connection with the proposed ordinance.

Read More

COVID-19: Certain Issues to Consider for Listed Indian Companies

While corporations across the globe brace for the full impact of the COVID-19 pandemic on their business, operations and financial results, listed companies need to be mindful of additional compliance requirements and responsibilities. This note discusses certain considerations which are relevant for listed Indian companies in the current COVID-19 scenario in relation to (i) periodic disclosures and reporting; (ii) board and shareholder meetings; (iii) impact on financial results and annual report; (iv) trading when in possession of UPSI and during trading window closure; (v) fund-raising; and (vi) duties of directors. As a practical matter, these considerations will continue to be relevant even in the future while tackling the aftermath of the COVID-19 pandemic or other crisis situations.

Read More

Foreign Direct Investment in India: Impact of Press Note 3 of 2020

On April 17, 2020, Press Note No. 3 (2020 Series) was issued by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India. The Press Note seeks to curb opportunistic takeovers and acquisitions of Indian companies by Chinese investors and companies due to the current COVID-19 pandemic. The Press Note has far-reaching implications on the overall FDI regime. This note analyzes some key considerations arising from the changes introduced by the Press Note, including (i) interpretation of ‘beneficial owner’; (ii) impact on indirect foreign investment; (iii) exercise of warrants and options and schemes of mergers; and (iv) bonus and rights issuances.

Read More

RBI Directions to NBFCs: Change of Shareholding Rule

Non-banking financial companies (NBFCs), as the name suggests, are companies that aren’t licensed to offer the full range of banking services. Instead, they provide a smaller bundle of financial services targeted towards particular groups. In order to provide credit to such groups, NBFCs need to raise capital at frequent intervals. Hence, raising capital is fundamental to the sector’s growth.

The Reserve Bank of India (RBI), India’s central bank, regulates NBFCs. One of the RBI’s most noteworthy rules pertains to the change of management and control of an NBFC. The RBI currently administers this rule through the Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2015 (NBFC Directions). It has been more than four years since the NBFC Directions came into effect. During this time, NBFCs have faced difficulties, particularly with its Change of Shareholding Rule. This note discusses its shortcomings and proffers a new rule to take its place.

Read More

COVID-19: Changes to India’s FDI Regime

In a significant move, the Indian Government has, in a bid to curb opportunistic takeovers of Indian companies as a result of COVID-19, directed that all investments from countries that share land borders with India will require prior regulatory approval. This change covers both direct and indirect investments and comes in the wake of recent acquisitions and exploration of investment opportunities by Chinese investors in India, scrutiny by the Indian securities regulator of Chinese ownership of portfolio investors and the introduction of stricter FDI regimes worldwide.

Read More