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Demerger and Reverse Merger

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Debika Banarjee
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13 views

Demerger and Reverse Merger

Uploaded by

Debika Banarjee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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CORPORATE DEMERGERS

AND REVERSE MERGER


GROUP- 6
Mohammed Faisal
Shreya Saha
Arjun Mehta
Hasan
Sujata
DEMERGER
• Demerger is a form of corporate restructuring in which
a firm’s business activities are segregated into two or
more components. This is the opposite of mergers.
• Demerging can be carried out by distribution of
transferring the shares of a subsidiary holding the
business to a company’s shareholders who are carrying
out the demerger.
• A demerger can also occur by transferring the business
to a new company or business and then issuing shares
to the shareholders of that company.
• EX: Fosters group ,Bajaj Auto Ltd
Modes of Demergers
• Partial Demerger : It is a separation of a part
or department or division of a company and
transferring it to one or more new companies
where the shareholders are the same as the
parent company and who are allotted shares
in the new company at the same proportion
which they hold in the parent company.
• Complete Demerger : It refers to transfer of a
whole company into one or more new
companies that are formed for this purpose
and the parent company is dissolved by the
special resolution of the shareholders.
• The shareholders of this parent company are
given shares in the new company or
companies as per the exchange ratio agreed in
the demerger scheme.
Ways of Demerger
• Demerger by Agreement
• Demerger under the Scheme of Arrangement
• Demerger under Voluntary Winding Up
Voluntary winding up
• Unable to function
• End of purpose
• Financial obligations
MODES
Voluntary winding up by:
• Members
Board meeting called wherein winding up is officially declared
along with an affidavit.
• Creditors
done when directors are unable to give a declaration on the
liabilities.
• Ordinary resolution
• Special resolution
Winding up procedure (MEMBERS)
• Appoint liquidator
• Payment of his services determined
• Notification to registrar
• Powers of others ceases
• If liquidation exceeds a year liquidator to call a
general meeting.
Tasks to be performed
• Conduct general meeting and present reports
• Meeting called through advertisement
• Copies to be sent to registrar and official
liquidator
• Company is dissolved if registrars is convinced
or else further investigation.
Winding up procedure (creditors)
• Appoint liquidator (creditors preference)
• Any director, member or creditor can
approach the court for a direction that The
liquidator appointed should wind up the
company
• He should join with the liquidator appointed
by the creditors for winding up.
• If liquidation exceeds a year liquidator to call a
general meeting.
Tasks to be performed
• Conduct general meeting and present reports
• meeting should be called through an advertisement.
• copy of the account should be sent to the registrar and
official liquidator within a week following the meeting.
• If the registrar is convinced that the affairs of the company are
not being carried out in a way that is partial to its members
then the company will be considered dissolved from the date
of report.
• Once a company has fully wound up and the assets have been
sold, the proceedings collected are used to pay off the
liabilities of the company and the creditors.
• The remaining amount could be distributed among the
members of the company based on their rights and interests
in the company.
Procedural Aspects of Reverse Merger
• In a reverse merger, the shareholders of the
private company acquire control in the public
company and then merge it with the private
firm.
• The public company is known as the shell
• The shareholders of the private company receive a
substantial majority of shares of the public
company and the control of it Board of Directors.
• If the public company is registered with the SEC
then the private company does not have to spend
too much time and resources on state and federal
regulators as this process would have already been
competed by the public company.
• But, a comprehensive disclosure document
containing audited financial statement and legal
disclosures would be needed by the SEC to report
the issuers
Benefits of Reverse Merger
• Possibility of quoting a higher price for the
shares later.
• Becoming a publicly held company at a
considerably less cost.
• Lower susceptibility to market conditions.
• Lesser time in completing the transaction.
Drawbacks of Reverse Merger
• Possibility of pending lawsuits and unforeseen
liabilities.
• Possibility of angry shareholders of the shell
company.
• Inexperience in the public sector for the
owners of the private company

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