Change in External Aspects on Reorganization:
Engagement with Statutory Authorities, Revised ISO Certification and Similar Other Certifications, Revisiting past Government approvals, decisions and other contracts
Engagement with Statutory Authorities
This is one of the most significant sections for dealing with legal obligations, and it is near the corporate secretary. It is essential to identify government bodies that must be legally notified of the merger/amalgamation/takeover, such as SEBI, the Stock Exchange, and others.
Restructuring is also likely to necessitate the reflection of changes to various government permissions, licenses, and approvals granted in the past, such as under labor and industrial laws, sales tax and service tax registrations, and permissions under SEZ/STPI requirements where a unit of a merging entity now becomes a part of the new entity. Prior to the merger, the merging business must take the necessary actions to update the registration of its cars.
Revised ISO Certification and Related Other Certifications
Restructuring may result in adjustments to current certifications such as ISO or equivalent other certifications. With the addition of locations or changes in organizational structure, appropriate changes must be reflected in the certifications obtained. For example, post-acquisition, the acquiring company may decide to close down a branch of the acquired company located in Bangalore, as the acquiring company may have a large set up in Bangalore; this would necessitate informing relevant bodies and completing necessary formalities to ensure all locations/functions in the new set up are certified.
Revisiting previous Government clearances
Restructuring may not necessarily include future choices or activities. One would need to look at prior conditional decisions or approvals and insist on revisiting earlier choices, such as presuming that a company’s Board of Directors issued a resolution not to pay any payment to nonexecutive directors. However, the purchasing corporation distributes a share of its earnings to non-executive directors. Following the purchase, and in order to comply with group policy, the business would need to approve another resolution authorizing the payment of salary to nonexecutive directors. Take another example: a corporation gained approval from the Reserve Bank of India with the proviso that foreign ownership in the company does not exceed X%. If the proportion of foreign ownership after purchase exceeds the specified percentage, the firm must address the situation to the RBI and obtain necessary approval. There would be a few disputed points where the Court’s ruling would apply and no formal procedure would be required. However, it is advised that a corporation take adequate measures to prevent various interpretations or potential noncompliance in such instances.
Additionally, a corporation may be required to comply with Operational Challenges. Following Corporate Restructuring, certain rules and obligations apply as a consequence of the restructuring, such as when a non-listed firm purchases a listed business and converts it into a subsidiary. Certain terms of the listing agreement/SEBI rules would apply to a holding company of a listed business that were previously not applicable to such a nonlisted firm. Alternatively, if a merging firm possessed a unit in a SEZ, the combined entity would now be required to maintain compliance with SEZ-specific rules. Assume a corporation has secured the 100 software licenses necessary as part of an internal system for a specific project. If the team grows to 150 individuals after the merger, the firm will need to get additional licenses.
Decisions and other contracts
It is a time-consuming task to review terms in current contracts that relate to any kind of restructuring. While the Hon’ble Court’s order will prevail and ensure that contracts entered into by the merging entity will continue to be transferred in the name of the merged entity as if the merged entity was the signing party from the relevant date, provisions in a contract with a third party may require the company to notify the other party of the merger or may cause the contract to be terminated.
A lease agreement with a committed time provision (allowing for a minimum lease period during which the landlord cannot terminate the lease contract) may liberate the landlord from such restrictions in the case of the lessee entity’s reorganization. Similarly, the corporation may lose benefits/concessions under the present contract unless it is able to renegotiate those terms in its favor. Alternatively, a contract may allow for the relaxation of fixed fee limits for a period of three years as a result of restructuring. It is now necessary for the combined company to review all such terms arising from a reorganization rather than criticize how poorly the contract was prepared by the merging business.
Furthermore, the combined organization would need to review the different rights and duties outlined in third-party contracts and assign teams to identify and assure compliance with those requirements. A loan arrangement may require the borrower firm to get prior clearance from the Bank. Restructuring is likely to result in termination rights for the other party to the contract, which might be problematic for business continuity purposes.