NBFC Takeover Procedure

Takeover www.enterslice.com

NBFC INTRODUCTION • Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 /2013 engaged in the business of loans and advances, Assets financing , investment share, debenture or other marketable securities of a like nature, leasing, hire-purchase and insurance business • NBFC provides working capital loan and credit facilities and investment in properties. It is useful for trading money market instruments

TAKEOVER MEANS : • A takeover is the purchase of one company (the target) by another (the acquirer ) . Takeovers can create a bigger, more competitive, more cost-efficient entities.

PROCEDURE for NBFC Merger • The First Step towards takeover of NBFC is to sign the MOU with proposed company, the proposal of NBFC takeover should be approved by the board of directors • seek consent of the bank/FI concerned for the proposed takeover/ sale • Prepare KYC Documents • Business Plan and Projection • Seek RBI Approval • Issue Public notice after RBI Approval • File an Application to national Company law Tribunal under Section 391-394 of the Companies Act, 1956 or Section 230-233 of Companies Act, 2013 seeking order for mergers or amalgamations with other companies or NBFCs

CONT…….

Acquirer of NBFC can first through the documents of target company , once Acquirer confirms the Acquisition of the said NBFC, MOU to be signed with some token money.

MOU – It is a non – binding agreement between two or more parties outlining the terms & details of an understanding , including each parties requirements & responsibilities .

The business deal ended with a discussion of the memorandum of understanding as to ensure all the parties were on the same page.

Cont…..

•

• • • •

Convene Board meeting after giving notice to all the directors to discuss besides others the following matters.

To propose resolutions to be passed at the Extraordinary General Meeting of shareholders To fix the date, time and place for convening the Extraordinary General Meeting of shareholders.

Coordinating with and replying to all RBI queries raised for the purpose of takeover scheme.

All the documents be submitted to the RBI where the company registered office is situated .

Cont…..

• After getting RBI approval letter , issue public notice . ( in last side we see ) in the two newspapers within 30 days as per the RBI regulations indicating such change in management and inviting public objections if any.

• Signing Share purchase Agreement & handing over change of management payment of remaining considerations etc to be carried out after 31st day of newspaper notice or as mutually agreed by all the parties.

• A public notice of at least 30 days shall be given before effecting the sale or transfer of ownership by sale of shares .

Cont…..

• All rights, titles, interests and benefits in the assets have been transferred to the buyer • The transfer of assets from selling NBFC must not contravene the terms and conditions of any underlying agreement governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have been obtained.

• NOC from creditors is required .

Valuation according to RBI •

•

Valuation of NBFC Takeover is to be done according to DCF method ( Discounted Cash Flow Method ) The discounted cash flow (DCF) analysis represents the net present value (NPV) of projected cash flows available to all providers of capital, net of the cash needed to be invested for generating the projected growth.

A DCF analysis yields the overall value of a business (i.e. enterprise value), including both debt and equity.

CA CERTIFICATE AFTER VALUTION • After the valuation Chartered Accountant will provide a certificate.

• Certificate includes 1. purpose of valuation , 2. brief background of company, 3. sources of information 4. Exclusions & Limitations 5. Valuation Approach

NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank along with the following documents • All Personal documents of directors & shareholders is required like Income proof etc.

• Declaration of all the directors is required that there is no criminal case & NBFC not associated with any company .

• Sources of funds of the proposed shareholders acquiring the shares in the NBFC; • Financial statement for last 3 years is required .

• Bankers’ Report on the proposed directors/ shareholders.

Change in management according to RBI For an organization, change management means defining and implementing procedures and/or technologies to deal with changes in the business environment and to profit from changing opportunities.

• Any change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of the NBFC. •

Any change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors. Prior approval would not be required for those directors who get re-elected on retirement by rotation.

PUBLIC NOTICE • Public notices are announcements from all levels and branches of government, from businesses and from individuals. Newspapers publish thousands of public notices every day, often in their classified advertising sections. Public notices inform you about government actions, environmental conditions and economic changes • A notice providing information for the public that is widespread throughout all types of media. It will be in newspapers, on radio broadcasts and television broadcasts. It includes items such as Lottery results and Development applications.

Public Notice about change in control/ management • A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the NBFCs and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank. •

The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

Thank You www.enterslice.com