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September 2019

Corporate Amicus: July 2019


Liquidation preference - Relevance in private companies
by Priyanshi Singhal


Liquidation preference (LP) is essentially a tool for protection of investor in an event of liquidation. The advantage of having an LP clause is assurance of dividend and repayment in the event of liquidation. While the issuance of preference shares with rights may appear to give full benefits of an LP clause to investors, there are certain features of an LP clause that make it more attractive than preference shares. According to the author, the uncertainty of adequate funds distributable as premium to the preference shareholders upon repayment of capital, makes the existence of an LP clause, subject to the provisions of the company’s charter documents, prudent in a shareholders’ agreement. However, the author cautions the readers about enforceability of LP clause in Indian scenario, as it new and the same also needs to be reviewed from the taxation perspective...

Budget 2019 - Key changes for corporate sector in India

  • Minimum public shareholding in the listed companies increased from the existing threshold of 25% to 35%
  • Local sourcing norms will be eased for FDI in Single Brand Retail Trading (“SBRT”) sector
  • 100% Foreign Direct Investment will be permitted for insurance intermediaries
  • FDI in aviation, media (animation, AVGC) and insurance sectors to be further liberalized
  • Existing Know Your Customer (KYC) norms for Foreign Portfolio Investors (“FPIs”) to be rationalized and streamlined
  • Listing norms for social enterprises and voluntary organizations to be introduced
  • Statutory limit for investment by FPIs to be increased
  • Non-Resident Indian (NRI) and portfolio investment scheme route to be merged with the FPI route
  • Proposed amendments to Payments and Settlement Systems Act, 2007
  • Consolidation of labour law
  • Eligibility criteria for NBFC tightened
  • Additional relaxations for start-ups

Notifications

  • SEBI signs memorandum of understanding with Ministry of Corporate Affairs for data exchange
  • Annual Return on Foreign Liabilities and Assets Reporting by Indian companies – RBI notifies web-portal interface
  • Filing of Form BEN-2 under the Companies Act, 2013

Ratio decidendi

  • Compliance of Section 62(1)(c) of Companies Act, 2013 ensures that allotment done is not prejudicial to interest of other shareholder or to the interest of company – NCLAT
  • Company cannot be struck off from ROC under Section 248 of Companies Act, 2013 merely on grounds of statutory non-compliances – NCLAT

News Nuggets

  • Customs cannot sale goods in possession after moratorium under IBC
  • No approval under Tea Act vital for application under Section 9 of IBC
  • Competition - Restrictions on sub-dealers when not anti-competitive
  • Section 18 of IBC is to prevail over Section 13(4) of SARFAESI Act
  • NCLAT modifies resolution plan discriminating against operational creditor
  • Contract workmen when not direct employees – Supreme Court lays down test
  • No penalty for non-payment of dividend if there exists a dispute
  • NCLT can extend period for compliance of filing returns under Rule 153
  • OECD publishes Corporate Governance Factbook 2019

July, 2019/Issue-94 July, 2019/Issue-94

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