Companies (Compromises, Arrangements and Amalgamations) Rules 2020

The Ministry of Corporate Affairs announced on 3rd February 2020, amendments to the Companies Rules 2016 regarding Compromises, Arrangements, and Amalgamations. The updated Companies (Compromises, Arrangements and Amalgamations) Rules 2020 are projected to be enforced following their publication in the Gazette of India.

Modifications to the Existing Companies Rules 2016

Below are the key modifications:

Insertion of New Sub-Rules:

Two new sub-rules, sub-rule (5) and sub-rule (6), have been added to Rule 3 after sub-rule (4).

Details of Sub Rule (5)

Takeover Offer:

According to Sub-section (11) of Section 230, a company member, possibly in collaboration with another member, can apply to take over the company. This is permissible only if the shares held by them collectively amount to or exceed three-fourths of the total company shares. The takeover process requires an application to own some or all of the remaining company shares.

Definition of Shares:

Shares refer to equity shares that grant voting rights, including securities such as depository receipts that allow shareholders to vote.

Condition Explained:

This sub-rule applies solely to takeover offers, excluding statutory or regulatory requisites, and is not applicable to contractual share transfers or transmissions. For more detailed guidelines about regulatory compliance, you can learn more here.

Details of Sub Rule (6)

Sub-rule (6) specifies the requirements for a takeover offer application.

Registered Valuer Report:

The application must include a report from a registered valuer, detailing the valuation methodology for the shares aimed to be acquired. For instance, if a member intends to acquire 10% of the remaining shares, the report should clarify the valuation process for this segment. The valuation considers:

Highest Price for Shares: The report should identify the highest price paid for the shares over the past year.
Fair Price of Share: Calculation of fair price considers parameters like:

Return on Net Worth
Book Value of Shares
Earnings per Share
Price Earning Multiple compared to Industry Average

For a comprehensive understanding of financial returns and valuations, visit this page on pricing.

Bank Account Details:

For the takeover offer, the applicant must open a separate bank account, depositing at least 50% of the total offer value as calculated in the registered valuer's report. These bank account details must be included in the offer application. To understand more about managing financial transactions, check our resources on fees and charges.

Substitution in the Existing Companies Rules 2016

The fee for applications related to compromise, arrangement, and amalgamation is stated in the Schedule of Fees for Serial No.1, Subsection (1) of Section 230 as Rs.5000. For further details on regulatory filings, you can also explore our guidance on CA-assisted filing services, or visit our GST return filing due dates page. Additionally, if you need more insights into filing specifics, feel free to visit our pages on GSTR-3B and Nil return filing.

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Frequently Asked Questions

Common questions about Companies Compromises Arrangements & Amalgamations Rules.

The Companies (Compromises, Arrangements and Amalgamations) Rules 2020 are amendments to the existing Companies Rules 2016, specifically related to compromises, arrangements, and amalgamations of companies. These new rules introduce changes such as the addition of sub-rules (5) and (6) under Rule 3, which provide guidelines for takeover offers and the required contents of such applications.

Sub-rule (5) introduces a new provision for company members (optionally along with another member) to apply for a takeover of the company, provided their combined shareholding is equal to or greater than three-fourths of the total company shares. This sub-rule defines the term "shares" to include equity shares with voting rights and securities like depository receipts that grant voting rights.

As per sub-rule (6), a takeover offer application must include a registered valuer's report detailing the valuation of shares to be taken over, considering the highest price paid for shares in the last year and the fair price calculated based on factors like net worth, book value, earnings per share, and price-earning multiples. Additionally, the application must provide details of a separate bank account with at least 50% of the total takeover offer amount deposited.

The notification has substituted the fee for applications related to compromises, arrangements, and amalgamations under Section 230, subsection (1) of the Companies Rules 2016. The amended fee for such applications is now set at Rs. 5,000.

The Companies (Compromises, Arrangements and Amalgamations) Rules 2020 aim to provide a more structured framework and guidelines for takeover offers, valuations, and applications related to compromises, arrangements, and amalgamations of companies. These rules introduce specific requirements and procedures to ensure transparency and fairness in such corporate actions.

The Companies (Compromises, Arrangements and Amalgamations) Rules 2020 will come into effect soon after their publication in the Gazette of India, as mentioned in the notification from the Ministry of Corporate Affairs dated 3rd February 2020.

The registered valuer's report is a crucial component of a takeover offer application under sub-rule (6). It serves to provide a fair and comprehensive valuation of the shares to be taken over, considering factors like the highest price paid for shares in the past year and the fair price calculated based on various valuation parameters specific to the company and industry.

No, sub-rule (5) is specifically applicable to takeover offers made under sub-section (11) of Section 230. It does not apply to share transfers or transmissions arising from contracts, regulatory requirements, or statutory necessities.

The requirement to open a separate bank account and deposit at least 50% of the total takeover offer amount ensures that the company member making the offer has sufficient financial resources and commitment to follow through with the proposed takeover. This measure helps protect the interests of other shareholders and maintains transparency in the process.

The Companies (Compromises, Arrangements and Amalgamations) Rules 2020 are applicable to all companies governed by the Companies Act, 2013, and the Companies Rules, 2016. These rules provide a framework for compromises, arrangements, and amalgamations involving such companies, subject to the conditions and procedures outlined in the rules.