| Waiver notified from many provisions of Companies Act |
|
New Delhi, 8 June The government has decided to exempt private companies, from seeking shareholder approval for its related- party transactions (RPTs) and relaxed norms related to deposit- taking, rights issue and ESOPs under the Companies Act, 2013. Similarly, in separate notifications by the ministry of corporate affairs ( MCA), government companies exempted public sector entities from managerial remuneration restrictions under the Act. Besides, charitable companies and nidhis ( mutual benefit loan societies) have also been exempted from various provisions of the Act. According to one such notification, all the restrictions and rigorous approval requirements concerning RPTs would not be applied to private companies or their associate companies. The restriction on a related party to vote on such a special resolution and to approve any contract or arrangement which may be entered into by the company has been removed in the case of private companies. "It is worth citing that none of these exemptions and relaxations would hamper the interest of the investors or public at large, as they cover only private companies with no or low public interest," said Yogesh Sharma, partner, Grant Thornton India LLP. These exemptions have been notified almost a year after the draft notification for doing so was issued, in June last year. In another relief, private companies would now be able to issue employee stock ownership plans ( ESOPs) with an ordinary resolution, which requires only 50 per cent approval of shareholders. Earlier, such a step required a special resolution, which requires 75 per cent approval. Moreover, private companies would now be able to make a rights issue with 90 per cent shareholder approval. The earlier provisions had some time limit set in this regard, held to cause unnecessary procedural delay. "Private companies have also been allowed to accept deposits from members without the requirement of offer circular and creation of deposit repayment reserves etc. Flexibility has also been provided in the types of share capital that can be issued by private companies," the ministry said in a press release. Private companies not having any investment by corporates have been allowed to extend loans to directors subject to certain conditions. An interested private company director has been allowed to participate in board meeting after declaring his interest. For government companies, the ministry has done away with limits on managerial remuneration as well as restrictions on the maximum number of directorships. Rules for disqualification of directors in certain cases have also been eased . TWEAKED COMPANIES ACT |Private companies exempted from tough rules on related party transactions Private company means a company which |Restricts the right to transfer its shares |Limitsthenumberofitsmembersto50 |Prohibits any invitation to the public to subscribe for any securities |One person company, small companies, private companies would not be taken into account, while calculatingthemaximumlimitof20companiesforaudit |
| Rules for hiring contract workers may be eased |
|
New Delhi, 8 June The National Democratic Alliance ( NDA) government at the Centre has proposed to give industries some flexibility in hiring contract workers for projectbased jobs or short- term assignments, a move cheered by industry but slammed by trade unions as an entry of ' hire and fire' through the back door. The proposal, originally mooted by the previous NDA government in 2003, was subsequently scrapped by the United Progressive Alliance ( UPA) government in 2007, following pressure from central trade unions. However, the proposal was now back on the table, amid strong demand from industry players, said a labour ministry official. The Union government has issued draft rules for inviting public comments on amending the Industrial Employment ( Standing Orders) Act. Even as five days are left for receiving public feedback ( proposals were mooted on April 29 for inviting comments within 45 days), central trade unions seem to lack clarity on the proposals. According to the draft rules, factories can hire ' fixed- term' workers for a specific time. The benefits they will get and their terms— working hours, wages, allowances, etc — will be the same as those provided to permanent employees. The employer will not have to give the worker any notice period at the end of his job tenure, or when the project is completed. The move will allow companies to hire workers for short assignments and terminate their services once the project is completed. "Fixed- term employment is needed to execute time- bound projects and short- term contracts where manpower employed could be dispensed with on completion of the project… The category of ' fixed- term employment' may be reintroduced," industry body Ficci had said in its proposal, soon after the NDA government took office in May last year. While industry is cheering the proposal, the central trade unions are slamming the government for keeping them in the dark. "One of the biggest challenges before companies today is hiring contract workers. The fear of having to match contract workers' expectations for employing them on a permanent basis deters industry from hiring casual workers which leads to non- creation of employment. The government move in this regard is commendable," says Rituparna Chokrabatory, co- founder & senior vice- president of TeamLease, a staffing firm. She says the new rule will bring clarity on a worker's job duration in his or her appointment letter itself. Turn to Page 6 > |Govt has proposed to allow companies to hire contract workers for short assignments, or on a project basis |This proposal was mooted by the previous NDA govt in 2003 and scrapped by the UPA govt in 2007 |The move will allow companies, especially those in construction or mining, to hire fixed- term workers for aparticular time, instead of permanent ones |Fixed- term workers will not be given notices at the time of termination of their service or at the end of tenure |The fear of having to regularise contract workers deters companies from hiring for the short term |The move will remove ambiguities as the duration of work and project will be clearly said in contract workers' appointment letters NEW NORMS IN OFFING |
| Rules for hiring ... |
|
Companies, particularly those in construction and mining activities, usually refrain from hiring permanent workers for project- based requirements, as termination requires process of retrenchment under the provisions of the Industrial Disputes Act. This includes giving a notice, payment of compensation, intimation to the government, etc. The employers will not be mandated to give a notice to a fixed- term worker on non- renewal or expiry of his or her contract. At present, there is no clarity in the Industrial Employment Act on whether there is a need to give a notice when the contract of a temporary worker expires or the employer chooses not to renew the contract. According to the proposal, in coal mines, workers hired as badli (temporary replacement for permanent workers) or on a temporary basis, will not be given notice on termination of employment. At present, employers need to give a two- week notice for terminating the services of the temporary workers who have completed three months in office. These workers could be fired without written explanations required under the present provisions. Trade unions have termed the proposal a " backdoor entry" of "hire & fire policies" of the government. "Since the government realised its proposed Industrial Relations Bill, which seeks to ease retrenchment process for employers, will take time to be implemented, it moved to amend the law this way. All future hiring will be on a ' fixed term'. It is strange the proposal has not reached trade unions. We will strongly protest this proposal," said A K Padmanabhan, president of Centre of Indian Trade Unions ( Citu). The government has drafted an industrial relations code to combine three existing laws, with changes to the Industrial Disputes Act, Trade Unions Act and Industrial Employment ( Standing Orders) Act. According to a proposal, units with up to 300 workers will be allowed to lay off workers without official sanction. At present, only those factories that have up to 100 workers are allowed to do so. |
| Banks get freedom to take 51% stake in defaulting firms |
|
Mumbai, 8 June In a significant move to provide a more flexible process for lenders to recover bad loans, the Reserve Bank of India ( RBI) on Monday allowed banks to acquire 51 per cent or more stake in companies defaulting after restructuring of their loans. The move, amid a rise in slippages from restructured assets, is aimed at resolving stress in the banking system. The RBI has, however, advised banks to sell the stake to a new promoter as soon as possible, but they should ensure the buyer is in no way related to the borrower. The other measures announced under the new scheme strategic debt restructuring (SDR) include allowing lenders to convert debt into equity within 30 days of review of companies' accounts. In addition, lenders acquiring shares of listed companies under restructuring would be exempted from making open offers, according to the Securities and Exchange Board of India ( Sebi) rules. These restructuring norms would also apply to all company accounts before Monday, the RBI said. When a debt recast is undertaken, several milestones, such as six months or a year, are set. Within these periods, the financial health of the borrower needs to be improved. Turn to Page 6 > POWER TO LENDERS |Strategic debt restructuring will allow lenders to convert dues into equity shares |This will take place when a borrowing company fails to achieve financial milestones even after debt recast |The debt- equity conversion clause will be incorporated in the debt recast plan CONDITIONS |Decision to invoke strategic debt restructuring will be taken within 30 days of recast account review |75% of banks by value and 60% by number of banks must approve the proposal |After the conversion, lenders under JLF must collectively hold 51% or more of equity |The SDR package must be approved within 90 days of approval |Conversion of debt into equity under SDR must be completed within 90 days |Conversion price should not exceed the lowest of ' market value' or ' break up' value |Conversion will not trigger open offer |
| Banks get... |
|
"If the borrower is not able to achieve the viability milestones, the joint lenders forum ( JLF) must immediately review the account and examine whether the account will be viable by effecting a change in ownership," the RBI said. JLF is a group of bankers formed when the borrower is facing difficulty in repayment. The main role of JLF is to identify and resolve stress at an early stage, so that the account remains standard. "If found viable under such an examination, the JLF might decide on whether to invoke the SDR; that is, convert the whole or part of the loan and interest outstanding into equity shares in the borrower company, to acquire a majority shareholding in the company," RBI said. The equity conversion clause needs to be incorporated at the time of restructuring. The RBI said the conversion of debt into equity should be at a fair value and should not exceed the lowest of ' market value' or ' breakup' value. Market value ( for listed companies) is the average closing share price of the company in the 10 trading sessions preceding the reference date, which is the date when SDR was decided. Break- up value is the book value per share to be calculated from the company's latest audited balance sheet, adjusted for cash flows and financials after the earlier restructuring. "The balance sheet should not be more than a year old. In case the latest balance sheet is not available, this break- up value shall be ₹ 1," the RBI said. "After the conversion, all lenders under the JLF must collectively hold 51 per cent or more of the equity shares issued by the company," the RBI added. The JLF can take a maximum of 90 days to approve the debt- equity conversion and the entire process of conversion should be completed within 90 days. In a relief to banks, such an exercise will not attract higher provisioning like non- performing loans. Banks will continue to treat the asset as standard for a period of 18 months, after which classification will done according to the health of the borrowing company. Such a conversion of equity is also exempted from calculation of capital market exposure and will not attract marked- to- market provisioning. If the new promoter is a non- resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own at least 26 per cent of paid- up equity capital or up to the applicable foreign investment limit. Rajnish Kumar, managing director, State Bank of India, said the scheme cleared the air over valuation of assets, and the timeline prescribed for the process were realistic. Other bankers said many promoters had started seeing the writing on the wall and would cooperate with lenders to bring in new management and owners. Sinjini Kumar, director at PricewaterhouseCoopers said this would enhance lenders rights' as the banking system would have more options to deal with stressed assets. The conversion of debt into equity to have majority stake without making open offer enhances lenders' rights. This would also reduce apprehension of prospective buyers about litigation. Others, though, are not so convinced. Nikhil Shah, managing director of Alvarez & Marsal, a turnaround management outfit, said while it strengthened lenders, the problem was with the " ability of debtors to litigate". In the Indian scenario, legal forums were slow in giving decisions and the process was complex. Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services, said what needed to be seen was how the JLF worked and how quick they were in resolving issues. " So far, we haven't seen any high performance from the JLF, so that needs to be watched. And then there might be some other practical challenges like non- cooperation by labour unions, executives, etc. Sometimes, there can be delays in making changes to statutory provisions, making it a challenge to finish the entire process within a period of seven months," he added. |
| 800 listed firms changed names since 2008 bull run |
|
Mumbai, 8 June Shareholders in a number of smaller companies are said to have stopped tracking their portfolios after the market cracked in 2008. Those looking at their investments as the indices hit new highs over the past year might have been surprised by the presence of many an unfamiliar name in their holdings. An analysis of data since the earlier bull run shows 800 listed companies went in for a name change over the past seven years. The bulk of these happened between the end of that bull run in 2008 and the beginning of a revival in market sentiment during 2014- 15. Some include duplications when multiple securities issued by the same company undergo name changes. However, the bulk are non- duplicate entries. About 500 name changes occurred between 2010 and 2013 ( both years inclusive). The highest was in 2011. 148 companies changed names during the year. At least 33 other companies changed names in the first half of 2015, exchange records show. Clarus Finance and Securities has been renamed as Scan Steels. Excel Infoways is now Excel Realty N Infra Limited. Similarly, Denim Enterprise is now Divine Entertainment. "Certain companies do it depending on what is in fashion. Everyone was a technology company during the time of the dot. com bubble. Finance companies had become popular. Often, it is penny stocks which use this as a means of increasing their share price before dumping stock in the market," said Amit Tandon, founder and managing director of Institutional Investor Advisory Services. Other companies might do it for genuine reasons, related to the business being redefined, achange in the product or business. The Securities and Exchange Board of India requires companies to only indicate a new area of business in their name if it contributes a certain proportion of total revenues. For example, a company can change its name from XYZ Ltd to XYZ E- Commerce Ltd only if a certain portion of its revenues come from e- commerce. However, this does not apply to overall name changes. So, if an investor has lost money in XYZ Ltd, the company may still be able to change its name to ABC Ltd and manage to again trap the unwary investor. "A company can change its name a hundred times if it wants, so long as it does not indicate a new area of business in the name. Many people who invest in penny stocks are not likely to conduct too much research. So, they are more likely to be ensnared by companies that have changed their names once already," said J N Gupta, managing director of corporate governance firm Stakeholders Empowerment Services. WHAT'S IN A NAME The number of listed firms changing names Year Number of name changes 2015 35 2014 76 2013 100 2012 126 2011 148 2010 137 2009 81 2008 106 Source: BSE exchange website |
| Inside the insider trading forms |
|
The new norms, recently come into force, rely heavily on periodic disclosure by promoters and other insiders. A circular from Sebi on May 11 prescribed four forms to be used. Forms A and B were for disclosures related to shareholding and exposure to derivatives (futures, options, etc) of directors, key managerial personnel (KMP) and so on. The former relates to the declaration to be done on the date the new regulation comes into force and the latter is the format for such declarations whenever a new director or KMP is appointed or when a person becomes a promoter. That brings us to Forms C and D. These are to be filed by the insiders and connected persons whenever there is a transaction. Form C is a 17column format prescribed for disclosure of ' Details of change in holding of securities of promoter, employee or director of a listed company and other such persons as mentioned in Regulation 6( 2).' Form D, also of 17 columns, is for reporting "Transactions by other connected persons as identified by the company". Thus, C and D are important formats that are going to be used by thousands of companies over the next several years for disclosure of important and price- sensitive information. These are designed to get not only the details of shareholding but the exact number of options, futures and such derivative contracts the insider and connected persons have traded on. However, there is a problem in these forms, which if not addressed soon could result in defeat of the purpose of the regulations. In Forms C and D, there are columns ( 3 & 4) to disclose type and number of securities held before the transaction and columns ( 5 & 6) for the type and number of securities transacted. Then, in the next two columns ( 7 & 8), the 'per cent of shareholding' pre and post transaction is given. The subsequent columns relate to date of the transaction, mode of transaction, derivatives and exchange of execution, etc. However, curiously, the number of shares held after the transaction is not required to be disclosed under the format in both forms C & D. This is going to create a situation where investors and public shareholders might not clearly understand what is the basic character of the transaction being reported — Buy or Sell. For example, an insider, X, holds 5.5 per cent in a company, which translates to 5.5 million shares. If he bought 10,000 shares the next week and reports it through the format prescribed by Sebi, the disclosure would look as follows: Securities held before acquisition disposal: a) Type :equity shares; b) Number: 5.5 million; Securities acquired/ disposed: a) Type: equity shares; b) number: 10,000. Then comes the interesting detail: Per cent of shareholding: a) Pre- transaction: 5.5 per cent; b) Post- transaction: 5.5 per cent. Thus, when the size of the transaction is below a tenth of a percentage point, the change in holding is not reflected. Thus, the format fails to disclose the basic nature of the transaction itself. Thus, if companies blindly follow this format, they could inadvertently end up not disclosing whether X bought or sold at all, as described above. One can't even contemplate the repercussions if people start using this as a loophole. STREET FOOD NSUNDARESHA SUBRAMANIAN Forms C and D are important formats that will be used by companies over the coming years for disclosure of important information. These are designed to get not only the details of shareholding but the exact number of options, futures and such derivative contracts the insider and connected persons have traded on |
Practising Company Secretary
Chennai
Mobile 93810 11200
__._,_.___
No comments:
Post a Comment