What is Corporate Restructuring?

What is Corporate Restructuring?

Further, PPP contracts of long term duration are complex in nature due to involvement of multiple stakeholders and there is a need to align their objectives for mutual benefit. Successful implementation of PPP projects calls for more due diligence by all stakeholders including the public sector contracting agencies, the private concessionaires, the bankers, etc. To remove information asymmetry among creditors, the Reserve Bank issued the ‘Framework to Revitalise the Distressed Assets in the Economy’ in January 2014. This led to the establishment pure play method of the Central Repository of Information on Large Credits and the requirement of the mandatory formation of the Joint Lenders’ Forum , when a large borrowal account emitted early warning signals. The framework also suggested regulations for sale of non-performing assets , penal action for not sharing information, better credit management, introduction of the ‘non-cooperative’ borrower category and disincentives for them. This means that the company can increase its share capital without increasing the number of shares.

  • Reverse Merger -When financially weak company absorbs financially strong company it is corporate restructuring made in the form of Reverse Merger.
  • Prudential norms on restructuring of advances were comprehensively revised in August 2008 and asset classification benefit was allowed on restructuring, subject to strict covenants and conditions to ensure that only viable accounts got restructured with asset classification benefits.
  • Generally, ordinary resolution is enough to alter the capital clause, thus notice of alteration to be given to the ROC, when share capital automatically stands increased.

The capital clause can be altered if the Article of Association contains the provision for such alteration otherwise, the first basic step is to alter Article of Association by passing a special resolution. The basic principle for alteration is that the alteration of share capital be bonafide & in the interest of the company. The Companies Act 2013 allows the companies to alter and make some changes in its authorized share capital with certain specified procedures for alteration of share capital is specifically mentioned in the Companies Act, 2013. Income Tax Act, 1961 The Income Tax Act, 1961 includes issues such as tax relief for amalgamated / amalgamated companies, loss forwarding, capital gain tax exemptions, etc. The process of corporate restructuring is considered very important to eliminate all the financial crisis and enhance the company’s performance.

Types of Corporate Restructuring

The report was placed in the public domain for feedback in June 2017 and the comments received on the report are under examination. The Reserve Bank may act as the lead regulator till transition to a fully functional CERT-Fin. Simultaneously, the government also constituted https://1investing.in/ a Digital Payment Security Committee to examine security issues in both the process and technology of digital payments. 3.42 The exponential developments in FinTech and related fields are also giving rise to unknown risks in addition to the hitherto known cyber risks.

  • Further you can also file TDS returns, generate Form-16, use our Tax Calculator software, claim HRA, check refund status and generate rent receipts for Income Tax Filing.
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  • The health of the real sector’s balance sheet ensures the health of the banks’ balance sheets and vice-versa.
  • As on November 2017, over 4300 applications under CIRP were filed in the various benches of NCLT.

In this regard, PSBs’ capital plans in particular need to take into account the somewhat elevated levels of slippage from uncontaminated standard assets and recovery risks embedded in assets referred to NCLT as outlined earlier. Certified True Copy of the Resolution altering the share capital of the company. Since I am focusing here on alteration in the share capital of the company so won’t go on detailing of the alteration of the Article, however, for altering the Article of the company we need to pass Special Resolution in the General Meeting.

Benefits of Reduction of Share Capital

For reduction in the share capital of the company, the registrar shall issue a certificate to the company for reduction. Every notice of a meeting shall specified by mentioning the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. A notice is required to be proper and elaborate, the material facts concerning each item of special business to be transacted at a general meeting, such as the nature of concern or interest, financial or otherwise to every director and the manager every other key managerial personnel and their relatives. When government by its order states that any debenture issued to any government by a company or any part under such circumstances, the debenture be converted into shares on the transfer of capital issued by the company. Notice of alteration is required to be given from the hands of the company to the registrar within a period of 30 days, if the company fails to do there are provisions for a hefty penalty under the statute. Alteration in the share capital can be done only if it is so authorized by its Articles of Association to alter the capital clause of its Memorandum of Association.

5 The taxation measure is unlikely to have a first order effect on household or corporate savings although the savings mix between debt and equity is likely to undergo modification. 3.28 Apart from the speed of resolution, another notable feature is that operational creditors, such as trade suppliers, employees, or workmen, have been empowered. Such creditors were served neither by previous restructuring mechanisms nor the existing recovery mechanisms .

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The other form of alteration of share capital is sub-division of shares i.e. 1 share of Rs. 10 each may be divided into 10 shares of Re. Intimation to the ROCSubsequently, taking approval in shareholder’s meetings, CorpBiz will help the company to draft the altered MOA to change in share capital. A company has to inform/notify about the same by filing form SH-7 with the MCA. Moreover, the form must be submitted in 30 days from the date of resolution. The scope of corporate restructuring is very wide as it may encompass global scenarios as well as national scenarios in order for a corporate to strive in the competition world. It also aims at exploiting the strategic assets accumulated by a business-like goodwill natural monopolies.

  • While a Paid-up Capital is the piece of approved share capital for which the shares were given to the investor.
  • But if we take a close look at all the forms of corporate restructuring is some kind of an arrangement.
  • In June 2016, it set up a committee on ‘Risk Based Capital’ to draw a roadmap on the implementation of a risk based capital system in India.
  • The organization utilizes cash to meet its necessity by the method of gaining business premises and stock-in-trade and so on.

B. Technological restructuring dealswith restructuring so as to exploit technological expertise either within the business group or with other companies. Improved productivity and cost reduction has necessitated downsizing of the work force – both at works and at managerial level. Changed fiscal and government policies like deregulation/decontrol have led many companies to go for newer markets and customer segments. The globalization of business has compelled companies to open new export houses to meet global competition. Functional based JV is entered into by companies in order to achieve mutual benefit.

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It is to be noted that amending capital clause is less cumbersome than altering other clauses since other clause required passing of Special Resolution and other approval for example if the company is moving its registered office from one state to another state. If the authorized by its articles, a company may utilised any undistributed profits to the company’s share premium account or capital redemption reserve to finance an issue of wholly or partly paid-up bonus shares in proportion to their existing holdings. If an organization wishes to expand its paid-up capital, it can expand it by offering the Right Issue of shares. The right Issue can be offered to current investors under a plan of workers’ investment opportunity, subject to a special resolution passed by the organization. The company may reduce the share capital by cancelling any shares which are lost or are unrepresented by available assets. E.g., if the shares of the face value of INR 100, each fully paid-up is represented by Rs. 75 worth of assets.

capital restructuring is defined as altering the of a firm

Such a mechanism also points to the possible recovery values embedded in assets of similar ageing profiles. The government recently tightened IBC to prevent wilful defaulters and other unscrupulous promoters from taking over a company under resolution. The Corporate Debt Restructuring Cell was established in 2001 as a need was felt for an institutional mechanism to resolve the large accounts under consortium and multiple banking arrangements. While during the initial period, the Reserve Bank retained the authority to approve CDR proposals on specific recommendations of the CDR core group, these powers were subsequently delegated to the CDR Empowered Group and the CDR Standing Forum, both high level bodies of participating banks’ top managements. The earliest prudential measure taken by the Reserve Bank regarding asset classification of loans and advances was the introduction of the ‘Health Code System’ for borrowal accounts in November 1985. 3.6 Economic theory has long emphasised the role of information in credit markets.

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