CORPORATE RESTRUCTURING, VALUATION AND INSOLVENCY

Time allowed : 3 hours Maximum marks : 100

NOTE :

1. Answer ALL Questions.

2. All references to sections relate to the Companies Act, 2013 unless stated otherwise.

PART A

Question 1

(a) “Corporate Restructuring is an inorganic growth strategy that significantly changes a company’s
business model, management team or financial structure to address challenges and increase
shareholders’ value”. Elucidate the statement with different options of Corporate Restructuring.
(5 marks)

(b) XYZ Resources Ltd., a listed company, is in the process of merging into ABC Transactions Ltd., which is
not a listed Company. As a Company Secretary, detail the additional aspects to be noted for the merger
of XYZ Resources Ltd. and ABC Transactions Ltd. in terms of Companies Act, 2013 and Securities and
Exchange Board of India (SEBI) Regulations. (5 marks)

(c) Secure Source Ltd., an Indian Company, is contemplating to take over Super Securers Pte. Ltd. of
Singapore through a process of merger and its top Management seeks your advice. Suggest the required
compliances. (5 marks)

(d) “Accounting treatment under AS 14 is confined to Amalgamations unlike Ind AS 103.” Discuss how
far Ind AS 103 can be distinguished with AS 14. (5 marks)

Attempt all parts of either Q. No. 2 or Q. No. 2A

Question 2

(a) Internal accruals accumulate to reserves prompts management to venture more avenues through
acquisitions or mergers but during and after the process, funds available internally are inadequate.
Suggest available avenues to fund the bids for Takeovers and Mergers in addition to internal accruals. (5
marks)
(b) Persuasion Performers Ltd. has defaulted in payment of certain instalments of Bank Loan during the
year 2012. On 17th October, 2016, Board passed a resolution to convene a general meeting to pass a
resolution authorising Board to buy-back its shares to the extent not more than 20% of paid up capital
and reserves. It is noted by the Board that the default to Bank was accidental and that has been made
good by July 2013. The Extra-ordinary General Meeting has been scheduled for Friday 18th November,
2016. Can you help the Board as to legality of the proposal stating any other aspect to be looked, that
prohibits buy-back of securities ? (5 marks)

(c) “Contracts entered into and in force need to be replaced by fresh contracts after merged or
takeovers entities that have been integrated pursuant orders passed by Courts or Tribunals.” Do you
agree ? (5 marks)

OR (Alternate Question to Q. No. 2)

Question 2A

(i) “Fairness, reasonableness and made in Good Faith are the premises on which the Judicial Authority
approves any scheme for amalgamation, merger or demerger.” Offer your comments supported by any
judicial pronouncements.

(ii) Threshold limits triggering public announcement for acquiring shares in listed public Companies are
not applicable in case of a listed company undergoing Corporate Insolvency Resolution Process (CIRP) in
terms of Insolvency and Bankruptcy Code 2016 — explain indicating the threshold limits that can be
ignored in case of CIRP ?

(iii) “Advocate may accompany a person summoned by the Director General in investigation under
Competition Act, 2002.” Briefly offer comments. (5 marks each)

Question 3

(a) “Orders sanctioning amalgamation or absorption are covered by the Indian Stamp Act as if it were a
Conveyance Deed.” Justify the statement with judicial pronouncements.

(b) In cases of takeovers or demergers, dissenting shareholders have a right to voice a grievance —
enumerate briefly the procedure.

(c) Rama Khadi Industries Ltd. is a fully owned subsidiary of Karishma Gramudyog Ltd. a State
Government Company. The State Govt. took a policy decision to amalgamate the former with the latter.
Illustrate briefly the steps to be taken in the matter.
(d) Several Credits Finance Company Ltd., a Non-Banking organisation is in the discussion for a merger
with Hatak Bank Ltd., a scheduled Bank. Recommend the action points briefly.

(e) Saravana Synthetics Ltd. passed a resolution for reduction of capital that has been approved by the
Tribunal. Being aggrieved on the valuation process employed Mr. Suman, a shareholder, holding about
4% of total capital, appealed against the said order. Will he be successful ? (3 marks each)

PART B

Question 4

(a) “Valuation is influenced not only by the motive of the acquirer company but also that of target
company’s objectives.” Analyse the statement in brief. (5 marks)

(b) The Managing Director of a company decides that his company will not pay any dividend till he
survives. His current life expectancy is 20 years. After that time it is expected that the company could
pay dividend of `30 per share indefinitely. At present the company could afford to pay `5 per share
forever. The shareholders of the company expect return on equity @ 10%. Find out : (i) What would be
the share price at the end of 20 years ? (ii) What would be the present value of a share using discounting
factor of 0.1468 (at 10% for 20 years period) ? (iii) What is the current price of a share if dividend
payment is Rs. 5 per share? (iv) What is the loss to the shareholders in the aforesaid scenario ? (5 marks)

(c) Explain Market Comparables Method of valuation. What are the steps involved in this method of
valuation ? (5 marks)

Question 5

(a) Despite having a statutory warning by Mutual Fund Companies as “Past performance may or may
not sustain in future”, past share market price data is quite often used in equity valuation while
investing/acquiring equity and SEBI regulations also take into account weekly highs and lows of such
market prices as litmus test. However, there may be certain inherent flaws and/or limitations while
going by such market based valuation(s). Highlight to your Board of directors certain possible flaws and
limitations in such market price based valuation(s) which may be misleading. (5 marks)

(b) Explain the following methods of valuation : (i) Net Realisable Value Method (ii) Valuation in case of
Slump Sale (5 marks)

(c) From the following data noticed from published financials, ascertain intrinsic value of equity shares :
Goodwill ` 56,400 Market value of other assets `18,00,000 Debentures `10,00,000 Trade payables
`2,50,000 Preference capital `2,00,000 and Equity capital consists of 10,000 shares of `10 each fully paid
up. (5 marks)

PART C
 Attempt all parts of either Q. No. 6 or Q. No. 6A

Question 6

(a) “Default by debtor was a crime punishable with imprisonment or death”. This forgotten perception
with respect to the laws of bankruptcy has now got transformed giving opportunity to a bankrupt or
insolvent for revival. Express the views in the current context of evolution of Insolvency Laws in Britain
and U.S.A and now even in India. (5 marks)

(b) “Vasudev Kutumbakam or one world one family is the motto of any business entity in addition to
political and cultural togetherness. This has prompted to the formation of United Nations Organisation
(UNO) to ensure smooth universal trade”. Comment on the statement with special emphasis on efforts
being made with respect to Cross Border Insolvency. (5 marks)

(c) “More and more banks are embarking on forming of Asset Reconstruction Companies such that they
can manage their risks better and can concentrate on lending”. Explain the salient features and
functions of an Asset Reconstruction Company in the context of the above statement. (5 marks)

(d) Unlike Companies Act, 1956 winding up can be resorted to only when resolution plan either could
not be finalised or failed within 30 days of approval by adjudicating authority as per Insolvency and
Bankruptcy Code, 2016. Are there any exceptions to such perception ? Who all are entitled to move
petitions for winding up ? (5 marks)

OR (Alternative question to Q. No. 6)

Question 6A

(i) “Committing default or failure of Resolution Plan may lead to liquidation of a body corporate
under Insolvency and Bankruptcy Code, 2016 but could there be other circumstances for which
a Tribunal may order for winding up ?” Examine and explain. (5 marks)

(ii) SARFAESI Act is a complete code in itself and there is no lacuna or ambiguity in it to warrant
reading something more into it or to borrow anything from the Companies Act. Comment on
the statement in light of decided case laws. (5 marks)

(iii) Write a note on “Effect of recognition of a foreign main proceeding” under the UNCITRAL
Model law. (5 marks) (iv)

(iv) Write a short note on the role of Insolvency and Bankruptcy Board of India. (5 marks)