INDIA Law and Practice Contributed by: Raj Ramachandran, Varun Sriram, Krutamana Pisipati, Aadhitya Logeshen and Abheejit V, JSA
fact pattern involving the merger requires NCLT’s involvement and wisdom. 5.2 Tax Consequences Spin-offs can be structured in a tax-compliant and effi- cient manner, depending on the nature and corporate structure or treatment of the business. Demergers are considered tax-efficient where there is a preference to replicate the share capital and pre-agreed inter se economic interests of the stakeholders. Some spin- offs may require approval from regulatory authorities, while others can be effected within shorter, definitive timeframes akin to contract-based investment trans- actions. 5.3 Spin-Off Followed by a Business Combination Follow-on business combinations are possible and are often considered in the context of specific business requirements or tax and other operational efficiencies. In certain cases, these transactions take the form of a demerger (of a specific business from one entity) followed by a merger (into the target entity). Howev- er, it is not always the norm, and both restructurings (demerger and merger) can be undertaken indepen- dently. These decisions are often also dependent on the stakeholders involved, the terms governing their investments in the company, and the potential invest- ments and fundraises that will govern the company’s business operations. 5.4 Timing and Tax Authority Ruling Spin-offs can be undertaken through business trans- fer agreements, asset transfer agreements, slump sales or demergers. The time period for concluding these spin-offs would be dependent on the manner in which the spin-offs were executed. For example, in demergers, approval from the National Company Law Tribunal is required. Other compliance requirements include issuing a public notice and notifying creditors and stakeholders. Demergers can accordingly be time-consuming, whereas a slump sale, business transfer, or asset sale can be conclud- ed quickly, as they involve only independent parties and do not involve any regulatory agency.
Purchasers or acquirers often require the seller to con- firm that there are no pending or likely claims from the tax authorities, as, under Indian law, a sale of an asset during ongoing tax proceedings can be reversed by the authorities, with a few exceptions. 6. Acquisitions of Public (Exchange- Listed) Technology Companies 6.1 Stakebuilding Where there is an acquisition of a material stake in a public-listed company in India (breaching a defined threshold, either individually or in the aggregate), an “open offer” has to be made to the public sharehold- ers. The “open offers” must cover at least 26% of the target company’s shareholding. SEBI’s Regulations (the “SEBI Regulations”) stipulate that any acquirer, along with individuals acting in con- cert with them, must disclose their total shareholding and voting rights in a target company if their combined ownership equals or exceeds 5% of the company’s shares. This reporting will have to be undertaken with- in two working days of receipt of intimation of allot- ment or acquisition of shares or voting rights. The buyer is required to disclose its intention to either delist the target company or retain the listed status of the target company in the public announcement required to be made. 6.2 Mandatory Offer The SEBI Regulations stipulate in certain instances that a mandatory “open offer” is made, ie, where: • the acquirer proposes to acquire 25% or more of the shares or voting rights in a target company; • the acquirer’s stake is equal to or exceeds 25% of the voting rights in the target company, and there is a proposal to acquire an additional 5% of the target company’s shares or voting rights, etc. All of these instances include the stake of the acquirer and the persons acting in concert with the acquirer together in determining if there is a breach of the threshold or trigger for the “open offer”.
148 CHAMBERS.COM
Powered by FlippingBook