Tag: Mergers and Acquisitions

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.

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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.

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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.

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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.

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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.

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Impact of COVID-19 on FDI Regimes

In mid-March 2020, German media reported that the United States President had offered to take over CureVac, a German vaccine firm which was working on a vaccine for COVID-19, to secure the vaccine only for the United States – these reports were later denied. Indian media has recently reported that the Chinese central bank now holds more than 1% shareholding in HDFC, India’s largest housing finance company. The COVID-19 pandemic has not only brought healthcare and critical infrastructure into focus from an FDI perspective, but has also weakened companies in other sectors and made them easy targets for creditors and opportunistic buyers.

This note examines the measures taken by certain countries, particularly in Europe, to protect their businesses from being taken over by foreign investors as well as India’s current position on FDI. While India has so far focused on liberalizing the FDI regime, if COVID-19 propels the Indian Government to follow suit, investors can expect introduction of additional restrictions on FDI as well as extended timelines for approval.

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A Review of the Foreign Investment Approval Process in India

With the aim of enhancing “ease of doing business” and “promoting the principle of Maximum Governance and Minimum Government”, the Government of India abolished the Foreign Investment Promotion Board on May 24, 2017. In its place, the relevant administrative ministry/department in consultation with the Department for Promotion of Industry and Internal Trade are now directly responsible for processing applications for foreign direct investment in India in sectors which require prior approval of the Government.

The move was expected to make the process of obtaining FDI approval faster and more efficient. Almost three years after the move, we consider in this note the current framework for FDI approval and areas for improvement.

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COVID-19: Coping with the Pandemic and the Changing Regulatory Regime in India

The outbreak of the coronavirus disease 2019 (COVID-19) pandemic has caused widespread disruption of businesses and daily life. As governments across the world struggle to contain the pandemic, a number of measures are being implemented aimed at minimizing its spread. In India, such measures are increasingly taking the form of mandatory social distancing through the imposition of a series of restrictions. As the situation evolves, the requirement for further restrictions is being constantly evaluated by governments and new measures are being implemented. The pandemic and the resulting measures raise a host of legal issues and concerns for businesses. This update analyzes certain legal and regulatory concerns arising in light of the COVID-19 pandemic and the consequent restrictions.

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Completing an M&A Transaction On-Market – Certain Key Considerations

In case of acquisitions involving listed companies, parties often choose to complete the transaction ‘on-market’, that is, on the floor of the stock exchanges, on account of tax benefits. This note analyses certain key legal considerations in completing such on-market acquisitions, including: (i) considerations for non-FPI foreign acquirers; (ii) the modes through which negotiated transactions can be completed on-market; and (iii) considerations under the takeover regulations when completing acquisitions during the pendency of a mandatory tender offer.

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A New Method of Minority Squ(ease) Out

On February 3, 2020, the Ministry of Corporate Affairs notified sub-sections (11) and (12) of section 230 of the Companies Act, 2013 along with also notifying the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020 and the National Company Law Tribunal (Amendment) Rules, 2020 (collectively, the “Takeover Notification”), which would enable shareholders of unlisted companies holding at least 75% securities (including depository receipts) with voting rights to acquire the remaining minority shareholders pursuant to a court-approved compromise or arrangement that includes a takeover offer.

Certain other methods that are generally considered for buying-out minority shareholders, often termed as minority squeeze-outs, include undertaking a selective reduction of share capital under section 66 of the Companies Act and the purchase of minority shareholding by a majority shareholder holding 90% or more of the share capital under section 236 of the Companies Act, 2013.

This note briefly discusses the new method of minority squeeze-out introduced by the Takeover Notification and considers whether the Takeover Notification makes it easier to squeeze out the minority shareholders as compared to the other available options mentioned in the paragraph above.

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