Saturday, 22 March 2014

Key Highlights: Companies Act 2013 Part II

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8. Inter corporate loans / investments

  • Loans, guarantee and security made to any person and not just body corporates will attract the 2013 Act compliance requirements. The scope has been widened.
  • Rate of interest on loans granted cannot be lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year Government Security closest to the tenure of the loan
  • The list of exemptions has been curtailed. Basically the norms have become stricter.

 9. Loan to Directors

  • No loans to be extended directly or indirectly. Also no loan can be extended by a book debt. Company cant give guarantee or provide security in connection with such loan to any director / related persons

– Exception to the rule is for MD or a whole time director (WTD) if such loan is in
accordance with the terms of services extended to all employees or is approved by shareholders
by special resolution
  • These provisions are applicable to private companies  as well

10. Mergers & Acquisitions

  • Restriction on multi-layer investment
  • Merger of Indian company with a foreign companyis now possible
  • Fast track merger for small companies and between holding company and its wholly owned subsidiary introduced
  • Persons holding 90% or more equity shares can purchase the remaining shares from minority shareholders
  • Any valuation of shares / assets etc. required under 2013 Act to be performed by a Registered Valuer

11. Measures for investor protection

  • Provisions relating class action suits introduced
  • Exit options for minority holders on reorganization

12. National Company Law Tribunal (NCLT)

  • Replacement of the High Court with NCLT

13. Miscellaneous

  • Transfer of profits to reserves for dividend declaration removed
  • Inability to pay debts is one of the reason to be considered a sick company
  • Provisions of revival and rehabilitation of sick companies to all companies 
  • Serious Fraud Investigation Office will be constituted 
  • Any person representing the company is made liable for punishment for fraudulently obtaining credit facilities from any bank or financial institutions for making any false, deceptive or misleading statement, promise or forecast 

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