Mergers & Acquisitions: in 60 Jurisdictions Worldwide
Mergers & Acquisitions: in 60 Jurisdictions Worldwide
Mergers & Acquisitions: in 60 Jurisdictions Worldwide
in 60 jurisdictions worldwide
Contributing editor: Casey Cogut
2011
Published by Getting the Deal Through in association with:
Aab-Evensen & Co Advokatfirma LEX Arendt & Medernach Arias, Fbrega & Fbrega Baio, Castro & Associados | BCS Advogados Bersay & Associs Biedecki bizconsult law LLC Bowman Gilfillan Inc Carey y Ca Corpus Legal Practitioners Coulson Harney Debarliev, Dameski & Kelesoska Attorneys at Law Divjak, Topi c & Bahtijarevi c ELIG Attorneys-at-Law Estudio Trevisn Abogados Freshfields Bruckhaus Deringer LLP Gleiss Lutz Grata Law Firm Harneys Aristodemou Loizides Yiolitis LLC Headrick Rizik Alvarez & Fernndez Herzog Fox & Neeman Hoet Pelez Castillo & Duque Abogados Homburger AG Hoxha, Memi & Hoxha Iason Skouzos & Partners JA Trevio Abogados Jade & Fountain PRC Lawyers Jose Lloreda Camacho & Co Kettani Law Firm Khaitan & Co Kim & Chang Kimathi & Kimathi, Corporate Attorneys Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP LAWIN LAWIN Lideika, Petrauskas, Vali unas ir partneriai Madrona Hong Mazzuco Brando Sociedade de Advogados Mello Jones & Martin Nagashima Ohno & Tsunematsu NautaDutilh Nielsen Nrager Odvetniki elih & partnerji, op, doo Prez-Llorca Salomon Partners Schnherr Setterwalls Advokatbyr Simont Braun SCRL Simpson Thacher & Bartlett LLP Slaughter and May Stikeman Elliott LLP Thanathip & Partners Ughi e Nunziante Vlasova Mikhel & Partners Voicu & Filipescu SCA Weil, Gotshal & Manges LLP Wolf Theiss Wong Beh & Toh WongPartnership LLP Wu & Partners, Attorneys-at-Law
India
Khaitan & Co
India
Rabindra Jhunjhunwala and Bharat Anand Khaitan & Co
1 Types of transaction
How may businesses combine?
In India it is possible to either combine two distinct entities into a single entity or to split two distinct undertakings into separate entities through a court-sanctioned scheme.
2 Statutes and regulations
What are the main laws and regulations governing business combinations?
It is common for companies to acquire or sell entire businesses or undertakings. For example, in 2010, Orchid Chemicals and Pharmaceuticals Ltd, a publicly listed entity, sold its entire injectable pharmaceutical business to Hospira Inc. Alternatively, an acquirer may wish to cherry-pick certain key assets (eg, IP and employees) and leave certain assets (eg, trade debts) behind. Both forms of business combinations are popular in India. For example, asset acquisitions may be preferred where the acquirer is wary of past liability issues and prefers to acquire segregated assets rather than acquire the target company as a whole.
Share acquisitions
The following principal laws play an important role in establishing the structure and form of business combinations:
Companies Act 1956 (the Act)
Under the Act, the sale of an undertaking needs shareholder consent (section 293(1)(a)) by way of a simple majority vote.
Authorisations under the Act
Often, it is simpler for an acquirer to take over 100 per cent of the share capital of the target company than seek to acquire key assets or the whole of the targets business undertakings. Indias foreign exchange control regime has been considerably liberalised to allow 100 per cent foreign ownership in most sectors of the economy, barring a small negative list (eg, retail trading and insurance sectors) where there are restrictions on the level of foreign investment (see below for details). Share deals may be preferred in sectors where key operating licences or assets cannot be transferred easily or in a timely manner (eg, telecoms and asset management companies).
Joint ventures
Where an Indian entity is the acquirer, it should be noted that: under section 292(1)(d) of the Act, the power to invest funds must be exercised at a meeting of the board specifying the total amount of funds that may be invested, and the nature of the investments which may be made; and under section 372A of the Act, where the amount of investments by an Indian entity exceeds 60 per cent of paid-up share capital and free reserves, or 100 per cent of free reserves, whichever is more, a special resolution (75 per cent majority) of the shareholders in general meeting is required.
Schemes of amalgamation
Joint ventures are another popular form of investment for many foreign investors wishing to enter India. Following the recent Mumbai High Court judgment in the Ruia case (2010) 159 CompCas 29 (Bom)), which seems to recognise pre-emption rights in shareholders agreements as enforceable obligations between the contracting parties, it is hoped that the currently prevailing question mark over the enforcement of shareholders agreements in general may be lifted. Since the Ruia case is now pending adjudication before the Supreme Court, it is too early to take a definitive view and the practice of incorporating the shareholders agreement into the target companys articles of association continues to prevail. Moreover, the Securities Exchange Board of India (SEBI) has taken a negative view of pre-emption rights and put-call arrangements in shareholders agreements and share purchase agreements. The Reserve Bank of India (RBI) has also clarified that put options are unenforceable. These views have been taken despite a government notification in 1961 (which subsists today) that pre-emption and similar rights are important and necessary for trade, commerce and economic development in India. Therefore, the position on these important provisions in shareholders agreements and acquisition contracts remains hazy. It is hoped that the Supreme Court will put these matters to rest with a definitive judgment.
Under Indian law (sections 391 to 394 of the Act), it is possible to merge two entities such that all of the assets, liabilities and undertakings of the transferor entity are transferred to and vested in the transferee undertaking with the transferor company being woundup. A scheme of amalgamation must be approved at a duly convened meeting by a majority in number and three-quarters in value of the creditors (or class of creditors) and members (or class of members), present and voting and thereafter sanctioned by the court.
Demerger
Where the business of an entity comprises two distinct undertakings, it is possible to split up the entity into two entities. Generally, shareholders of the original entity would be issued shares of the new entity. Where a demerger is completed through a court process, it will not result in capital gains or sales tax liability for the seller (section 2(19AA), Income Tax Act 1961). In addition, tax losses carry forward to the acquirer.
Takeovers
SEBI regulates the Indian securities market. Under the SEBI Takeover Regulations 1997 (Takeover Code), where an acquirer acquires 15 per cent or more of the shares or voting rights of a listed company, the acquirer is required to make an offer to the public to acquire at
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least 20 per cent of the voting capital of the company at the minimum offer price. Under the Takeover Code, an indirect acquisition of shares or control of a parent or holding company of an Indian listed company could potentially trigger a mandatory bid obligation in India. Therefore, great care has to be taken while structuring transactions where the target has an Indian listed subsidiary.
Listing agreement
4 Filings and fees
India
Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?
The listing agreement specifies various disclosure obligations. In particular, listed companies must ensure that all unpublished price sensitive information (UPSI) is disclosed. Dealing in securities of listed companies based on UPSI is punishable under the SEBI Insider Trading Regulations.
Competition Act 2002
Pursuant to the notification of the Competition Act 2002, business combinations that exceed the thresholds under section 5 would be subject to the mandatory pre-merger notification regime of the Competition Act 2002. Combinations broadly include mergers and acquisition activity, certain acquisitions by private equity funds and also court-approved mergers and amalgamations. The thresholds vary depending upon the nature of the transaction and parties involved, as below:
Scenario 1: Combination of standalone acquirer and target (India presence only) Combined assets* >1,500 crores rupees (c US$333.33 million) or Combined turnover** >4,500 crores rupees (c US$1 billion)
India has a strict and highly prescriptive exchange control regime which applies to acquisitions with a cross-border element. For example, in case of a transfer of shares by an Indian resident to a nonresident, shares must not be transferred at a price less than the price determined in accordance with the pricing norms of the RBI, Indias central bank. Broadly, this means that the price per share must not be less that the discounted cashflow price as certified by a chartered accountant or a merchant banker. In case of a share transfer, a report must be filed in the prescribed form (Form FC-TRS) within 60 days of the remittance of proceeds. Several local practitioners take the view that, based on the relevant regulations, completion of these filing formalities is necessary to enable registration of the transfer of shares in favour of the acquirer.
Stock exchange reporting
In the case of companies whose shares are publicly listed in India, under the SEBI (Insider Trading Regulations) 1992, information regarding amalgamation, mergers or takeovers is deemed to be pricesensitive information and must be disclosed by the target company to the exchange.
Stamp duty
Scenario 2: Combination of standalone acquirer and target (worldwide with India presence) Combined assets >US$750 million Including India presence of 750 crores rupees (c US$166.67 million) or Combined turnover >US$2,250 million Including India presence of 2,250 crores rupees (c US$500 million)
Stamp duty is payable on the transfer of shares at 0.25 per cent of the value (or consideration) of the shares transferred.
Competition
As mentioned above (see question 2), if the specified thresholds are triggered, a filing will have to be made with the CCI.
5 Information to be disclosed
What information needs to be made public in a business combination? Does this depend on what type of structure is used?
Scenario 3: Combination of group*** acquirer and target (India presence only) Combined assets >6,000 crores rupees (c US$1.33 bilion) or Combined turnover >18,000 crores rupees (c US$4 billion)
Scenario 4: Combination of group acquirer and target (worldwide with India presence) Combined assets >US$3 billion Including India presence of 750 crores rupees (c US$166.67 million) or Combined turnover >US$9 billion Including India presence of 2,250 crores rupees (c US$500 million)
In contrast to public listed companies where the extent of disclosure is relatively high due to dealings taking place on the stock exchange and related reporting obligations, in case of private acquisitions, there is no mandatory requirement to make any public disclosures. However, in our experience, details of private deals often leak.
6 Disclosure of substantial shareholdings
What are the disclosure requirements for owners of large shareholdings in a company? Are the requirements affected if the company is a party to a business combination?
* assets are explained under section 5 of the Competition Act. ** turnover is defined under section 2 of the Competition Act. *** group is defined under section 5 of the Competition Act.
The final combination regulations notified by the Competition Commission of India (CCI) provide certain exemptions to this requirement to notify and there is also an exemption for transactions involving small targets, ie, targets with assets less than 250 crores rupees (about US$55.55 million) or turnover less than 750 crores rupees (about US$166.67 million). The final regulations also mention certain transactions that may qualify for a simpler notification under Form I (part I or part II). All other combinations would have to be notified under Form II of the CCIs combination regulations.
3 Governing law
What law typically governs the transaction agreements?
Typically, Indian law is the governing law of transaction agreements where the target is based in India or the assets are based in India. In some cases (eg, project documents or foreign currency-denominated loans), it is possible to negotiate some other governing law.
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Under the Takeover Code, an acquirer must disclose his shareholding if it acquires more than 5, 10, 14, 54 or 74 per cent of the shares or voting rights of the listed target company. Such disclosures must be made at each stage of acquisition and are to be made to the company and to the stock exchanges on which the shares of the company are listed. Under the SEBI (Insider Trading Regulations) 1992 a person holding 5 per cent or more of the share capital of a public listed company must disclose changes in shareholding exceeding 2 per cent of the share capital of the target company or resulting in its shareholding falling below 5 per cent. Furthermore, directors or officers must disclose changes in holding exceeding 500,000 rupees (in value) or 25,000 shares or 1 per cent of the voting rights (whichever is lower) to the company and the exchange.
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7 Duties of directors and controlling shareholders
What duties do the directors or managers of a company owe to the companys shareholders, creditors and other stakeholders in connection with a business combination? Do controlling shareholders have similar duties?
Khaitan & Co
lic takeovers closely resemble private M&A transactions, with the exception of the acquirer having to complete an open offer process in accordance with the Takeover Code. However, recently certain assets have been subject to competing bids for a variety of reasons. In case a potential business combination may develop into a competitive transaction, the following considerations may be kept in mind: timing: in the case of a publicly listed target, the Takeover Code provides that a competitive bid must be made within 21 working days from the date of the public announcement; true shareholding: it is important to carry out a thorough due diligence on the controlling stake held or influenced by the existing controlling shareholders (or promoters) so that a greater level of deal certainty can be achieved; directors: an acquirer is entitled to appoint a director on the targets board following 21 days from the date of announcement provided it deposits the entire offer consideration in escrow upfront. Interestingly, the target can vary its board during the offer period provided it does not appoint any person connected with the acquirer; and due diligence: there is no statutory duty on the targets board to provide equal information, although the targets board may be reasonably expected to do so having regard to its duties. Most negotiated deals in India are based on some business and operational due diligence. The regulation of hostile bids is expected to change if the Takeover Code is modified based upon the recommendation of the Takeover Regulations Advisory Committee.
10 Break-up fees frustration of additional bidders
Which types of break-up and reverse break-up fees are allowed? What are the limitations on a companys ability to protect deals from third-party bidders?
Directors duties
Directors duties under Indian law are similar (but not identical) to English law. So, under Indian law, a directors relationship with the company is that of a fiduciary. Directors must act bona fide in what they consider are in the interests of the company and for a proper purpose. A director must avoid any actual or potential conflict between his own and the companys interests. If a company proposes to enter into any arrangement or contract in which the director is directly or indirectly concerned or interested, the director is under a statutory obligation to declare such interest at a meeting of the board. Normally the declaration of an interest must be made at the first such meeting at which the matter is considered. In the case of a public company (or a private company which is the holding company or subsidiary of a public company) interested directors cannot constitute or form part of a quorum or vote on matters in which they are interested.
Statutory restrictions on directors
Board and central government approval is required for a director (or certain persons connected with the director) to contract with the company in relation to the sale, purchase or supply of goods and services or for underwriting subscription to shares/debentures of the company (section 297 of the Act). However, contracts with a value of less than 5,000 rupees and companies with a paid up capital of less than 10 million rupees are exempt from this requirement. Furthermore, contracts for purchase and/or sale for cash at prevailing market price and any transaction by a banking or insurance company in the ordinary course of business will not require the board and central government approval.
Shareholders duties
Under Indian law, controlling shareholders are not subject to similar duties as directors. However, as in English law, controlling shareholders are obliged not to deal with the minority in an unfairly prejudicial or oppressive manner (section 397 of the Act). Courts have wideranging powers in case a claim of unfair prejudice is successfully made.
8 Approval and appraisal rights
What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?
Shareholder approval (simple majority vote) is necessary where a company proposes to dispose an undertaking. In case of a merger or demerger, shareholder approval is necessary provided that a majority in number and three-quarters in value of the shareholders and creditors approve such transaction. It should be noted that listed Indian companies tend to be closely held by an individual or a family. Therefore, deal protection can be achieved by ensuring that the controlling shareholders are committed to the proposed transaction.
9 Hostile transactions
What are the special considerations for unsolicited transactions?
Although much more common in relation to private deals (especially where financial investors are involved or in case of termination due to non-satisfaction of a condition), deal protection devices such as break fees (payable by the target or promoters to the bidder) and reverse break fees (payable by the bidder to the target or promoters) are extremely rare in connection with public deals India. It is not clear whether SEBI would approve an offer letter involving such payments, especially if these arrangements cast a potential payment obligation on the target company. Under the Act, it is unlawful for any company to give financial assistance in connection with the acquisition of shares (section 77 of the Act). However, the consequences of a breach are also relatively minor and liability of the company, and every officer of the company who is in default, is limited to a fine of maximum 10,000 rupees.
11 Government influence
Other than through relevant competition regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations, including for reasons of national security?
Historically, unsolicited transactions in case of publicly listed entities have been scarce in India due to the concentration of controlling interests in a few individuals or families. Most public deals involve a degree of due diligence by the acquirer and fairly robust representations and warranties package backed by the seller. Accordingly, pub-
Yes. If there is a perceived risk to national security, the government can influence or restrict the completion of a business combination. For example, although there is no formal record, it is reported that the central government had rejected certain investment proposals owing to political or national security reasons in sectors such as telecoms. The government is likely to introduce a more elaborate security screening process for sectors like refineries, civil aviation, defence production, telecoms and real estate.
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12 Conditional offers
What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?
India
two-week average of the stock price on the stock exchange prior to intimation of the exchange that the company desires to delist. For the delisting offer to be successful, the shareholding of the promoter after the closure of the offer must be the higher of: 90 per cent of the total shares; and the aggregate pre-offer shareholding of the promoter and 50 per cent of the offer size.
15 Cross-border transactions
How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
In the case of a private deal, the parties are free to negotiate the conditions to completion. However, we have rarely seen financing conditions even in the case of private deals. In the case of public transactions there is much less flexibility. In general, SEBI does not allow acquirers to rely on any pre-conditions other than Indian statutory approvals. So, for example, if an offer is triggered in India as a result of a global acquisition, it would not be open to launch a conditional offer in India subject to completion of the global acquisition. Prior to launch of a public offer, the acquirer has to satisfy the merchant bankers that it has requisite funds to complete the offer. Therefore, financing conditions would not be permitted in India. Exchange offers are rare in India there is a view that SEBI would permit exchange offers if the offerors shares are also publicly listed and traded in India.
13 Financing
If a buyer needs to obtain financing for a transaction, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyers financing?
Generally, prior to consummating a share acquisition in India, offshore buyers typically incorporate a holding company in a jurisdiction with a friendly tax treaty with India (eg, Mauritius, Singapore, the Netherlands or Cyprus, etc) in order to secure favourable tax treatment at the time of exit. Apart from tax considerations, Indias exchange control regime applies to cross-border deals. Thus, foreign investors cannot acquire listed shares directly on-market unless they are registered as foreign institutional investors with SEBI. As mentioned above, special pricing and reporting requirements apply in connection with the issue and transfer of shares to a non-Indian-resident investor by a person resident in India.
16 Waiting or notification periods
Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations?
Pure leverage cross-border deals are not common in India. Where a transaction is debt-financed outside India, normally an offshore security package is put in place by the acquirer as taking security over Indian assets needs prior approval from the RBI. In such a scenario, funds are normally drawn down and available at the time of signing the acquisition documents and making the public announcement in order to satisfy the merchant banker that necessary financing is available. Even in case of purely domestic deals, financing conditions are rarely sought for, or accepted.
14 Minority squeeze-out
May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
Where an acquisition relates to a sector where foreign investment is restricted and therefore needs prior regulatory approval from the central government, the waiting period for such approvals can range from six to eight weeks. The central government has delegated authority to the Foreign Investment Promotion Board (FIPB) under the aegis of the Ministry of Finance to grant such approvals on its behalf. In practice, delays are not uncommon and the definitive timing to obtain FIPB approval is hard to predict.
17 Sector-specific rules
Are companies in specific industries subject to additional regulations and statutes?
India does not have an effective squeeze-out regime. Under the Act, in order to implement a squeeze-out, the acquirer must receive acceptances from over 90 per cent (in value) of the outstanding share capital. If the acquirer holds more than 10 per cent of the shares, acceptances from 90 per cent of the outstanding share capital and consisting of at least 75 per cent in number of the targets shareholders must be received. So, for example, where an acquirer holds 60 per cent of the share capital of a target, it must receive acceptances from at least 36 per cent of the outstanding shares (in value terms) and such shareholders must make up at least 75 per cent in number of the targets shareholders. The offer to acquire shares needs to be open for a minimum of four months. Dissenting shareholders have the right to make an application to the court within one month from the date of the notice, if they are aggrieved by the terms of the offer. However, the inter relationship between the Takeover Code and the squeeze-out regime under the Act is unclear and these provisions have not been successfully used in conjunction with an open offer. Some acquirers have implemented court schemes (as a part of their overall controlseeking strategies), which may result in a reduction in overall minority shareholding. Another possible method of squeeze-out for listed companies is delisting the shares from the stock exchange. For this, delisting must be approved by a special resolution of the company in a general meeting by a two-thirds majority of shareholders present and voting. The pricing of shares for the delisting process is determined by the reverse book-building process with a minimum floor price of the
Yes. For example, foreign investment in the insurance sector is restricted to 26 per cent of the share capital of the Indian insurance company. In addition, the Indian insurance company is required to obtain a licence from the Insurance Regulatory and Development Authority (IRDA) and adhere to several reporting, solvency and accounting requirements. Accordingly, in addition to exchange control laws, it is important to evaluate the local industry-specific regulations prior to finalising any investment proposal in India.
18 Tax issues
What are the basic tax issues involved in business combinations?
Share sales
Under Indian tax laws, any gain arising out of transfer of Indian shares is liable to tax in India. Accordingly, it is important to determine whether the gains are long-term or short-term capital gains (depending upon whether the shares are held for a duration exceeding 12 months or less). The currently prevailing rates for resident and non-resident corporate sellers are as follows:
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Particulars
Nil 16.22%
* Note: In the case of listed securities there is an option to pay tax at the base rate of 10 per cent (plus applicable surcharge and education cess), ie, 10.82 per cent for resident and 10.51 per cent for a non-resident corporate seller, without taking the benefit of indexation (so as to take care of inflationary changes). However, the availability of this option to a non-resident is not free from doubt.
Asset sales
Ordinarily, asset sales also involve the sellers being liable for capital gains. In the case of assets held for more than 36 months, the capital gains tax rate for a non-resident corporate seller is 21.01 per cent and in the case of assets held for up to 36 months, the capital gains tax rate is 42.02 per cent. In addition, sales tax or value-added tax may be levied, unless the transaction is structured as the sale of an undertaking on a going-concern basis.
Demerger
combination involving the transfer of employees, it is mandatory to ensure that employees consent (in writing) to their transfer and are hired by the transferee on terms no less favourable than their original terms of employment. In the event of a transfer of an undertaking all workmen who have been in continuous service for a period of at least one year are entitled to one months notice and compensation equivalent to 15 days average pay for every completed year of continuous service or any part thereof in excess of six months, as if such workmen have been retrenched. However, compensation need not be paid when: the service of the workman is not interrupted by such transfer; the terms and conditions of service applicable to the workman after a transfer are not in any way less favourable than his terms and conditions prior to the transfer; and the new employer, under the terms of such transfer or otherwise, is liable to pay compensation, in the event of his retrenchment, on the basis that his service has been continuous and has not been interrupted by the transfer. The above exceptions are cumulative and all the conditions must be met if the current employer is to be released from his liability to compensate the workmen on the transfer of the undertaking. The new employer will be responsible for paying compensation to a workman in such circumstances.
20 Restructuring, bankruptcy or receivership
What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
In order to ensure that a demerger of an undertaking is tax-neutral, following conditions need to be satisfied: transfer of all assets and liabilities of the undertaking; transfer of assets and liabilities at book value; consideration for transfer settled solely by issue of shares in the resulting company; shareholders holding at least three-quarters in value of the demerged company to become shareholders in the resulting company; and transfer on a going-concern basis.
19 Labour and employee benefits
What is the basic regulatory framework governing labour and employee benefits in a business combination?
Transfer of employees is automatic in case of transfer of an undertaking from one owner to another. The Industrial Disputes Act 1947 (ID Act) defines an undertaking as a unit of an industrial establishment carrying out any business, trade or manufacture. The ID Act provides for compensation to workmen in the event of transfer of ownership or management of undertakings from one employer to another by agreement or by operation of law. The term workmen applies to those employed in an industry to carry out manual, unskilled, technical, operational, clerical or supervisory work for hire or reward. It also includes persons employed in a supervisory capacity who earn less than a specified amount (currently 10,000 rupees per month). Other employees are governed by the terms of their employment contract, but in the case of a business
By way of background, under Indian law, a company is regarded to be potentially sick where accumulated losses at the end of a financial year have eroded 50 per cent of its net worth during the immediately preceding four financial years. The board of directors of a potentially sick company can make a reference to the Board for Industrial and Financial Reconstruction (BIFR) within 60 days from the date of finalisation of the audited accounts for the financial year with reference to which sickness is claimed. Foreign investors are permitted to invest in sick units, provided that prior approval of the BIFR is obtained. While acquiring assets from a company in the BIFR, it is vital to ensure that no proceedings are pending against any order by the BIFR that could possibly encumber title to the assets. In addition, it may be noted that the Act contains detailed provisions as to preferential payments in the winding-up of a company. Proceeds realised at the time of winding-up must be paid to workmen, secured creditors, taxes and rates due to the government, wages or salary of any employees, accrued holiday remuneration and contributions under employees benefit schemes.
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Under section 531A of the Act, any transaction relating to property of the company consummated within one year prior to the commencement of its winding-up, other than in the ordinary course of business or in good faith for valuable consideration, is invalid. Furthermore, transactions with creditors preceding six months prior to the commencement of a winding-up can be challenged as a fraudulent preference.
21 Anti-corruption and sanctions
What are the anti-corruption and economic sanctions considerations in connection with business combinations?
India
and is punishable with imprisonment and/or fine. Corporate liability for bribery offences under POCA is a grey area. We have been informed that although there is no reported case where a company has been held liable under POCA on account of offences committed by its directors and/or other officers, the imposition of such liability is technically possible and fines would be higher against a company than an individual. PMLA forms the core of the legal framework put in place by India to combat money-laundering. PMLA and rules notified thereunder impose obligations on banking companies, financial institutions and intermediaries to verify the identity of clients, maintain records and furnish information to the relevant authorities. PMLA defines money-laundering offences and provides for the freezing, seizure and confiscation of the proceeds of crime. Where a company has committed a money-laundering offence under PMLA, every person in charge of and responsible to the company for the conduct of its business at the time of commission of the offence is deemed to be guilty unless he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. This effectively reverses the burden of proof as far as the individual is concerned. India is also a signatory to the United Nations Convention against Corruption, but has not yet ratified it.
There is no single comprehensive legal framework in India to deal with anti-corruption and economic sanctions considerations in relation to business combinations such as the Foreign Corrupt Practices Act 1977 (in the United States) or Bribery Act 2010 (in the United Kingdom). In India, the anti-corruption and economic sanctions regime in relation to business combinations is largely covered by the Act, Indian Penal Code 1860 (IPC), Prevention of Corruption Act 1988 (POCA), Prevention of Money Laundering Act 2002 (PMLA) and foreign exchange laws and regulations. A corrupt practice or bribe by any public servant, company or its officers may amount to a criminal offence (breach of trust, cheating, fraud, etc) under the IPC
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