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The term NBFC stands for Non-Banking Financial Company which is registered under the Companies Act 1956/2013. The main business activity of which is giving loans and advances, assets financing, investing in shares, debentures and other marketable securities. It provides working capital loans and credit facilities. In this topic, we will discuss the Checklist for Takeover of NBFC Broadly NBFC is 2 types:
The term takeover of NBFC means the purchase of one NBFC by the other company. The Takeover takes place only when the two of the companies are already registered. In this process two companies are involved i.e.:
Target Company: Target Company is the company which is being targeted to be acquired by the other company.
Acquirer Company: Acquirer Company is the Company which is acquiring the target company.
friendly takeover as the name insists is the takeover which takes place between the companies with their mutual consent. Acquirer Company offers the target company for being acquired and the same offer is being accepted by the target company and the process of takeover take place.
A hostile takeover is totally different from a friendly takeover. In this process, the acquirer company secretly tries to acquire the acquired company. Generally, this kind of takeover takes place when the management of the acquired company is unwilling to accept the offer of the takeover.
Likewise, any other company takeover of NBFC can also take place. The rules and regulations regarding the takeover of NBFC are regulated by the Reserve Bank of India. So takeover of NBFC means when any other NBFC acquires the other NBFC it is considered as a takeover. Similarly, it can also be done in two different ways i.e. friendly takeover and a hostile takeover.
Read Also: RBI Requirements in Case of NBFC Takeover.
The RBI has specified some norms which are required to be followed by NBFC’s and they are:
Checklist for Takeover of NBFC can be broadly divided into 8 parts i.e. NBFC Takeover procedure.
The first step towards the takeover of NBFC is signing of the MOU i.e. Memorandum of Understanding with the proposed company, the MOU specifies that both the companies agree to enter into an agreement of takeover. The MOU is signed by both the directors of both the companies i.e. Acquirer Company and Target Company. While the signing of the MOU token money is given by Acquirer Company to the target company. MOU shall specify the responsibilities and requirement of each party.
After the signing of MOU a Board Meeting shall be convened in both the companies to discuss on following matters;
After the approval of the RBI has been granted then the public notice shall be made in two newspaper within 30 days of such approval to invite any objection of the public which is taking place due to take over.
After the expiry of the 31st day of newspaper notice, share transfer agreement shall be signed and remaining consideration shall be paid by the acquired company.
Before the sale of business or transfer of business from Target Company to Acquirer Company target company shall take NOC from its creditors.
If no objections have been received and the RBI approves the scheme of taking over then the transfer of assets shall take place. But the transfer should not be contravening any clause of the agreement.
the valuation of the company shall be done. This valuation shall be done in accordance with the rules provided by RBI. The technique adopted for valuation shall be DCF i.e. Discounted Cash Flow Method, this will represent the net present value of the entity. After the evaluation, a certificate shall be obtained by the Chartered Accountant briefing the method adopted for valuation.
After the approval of scheme and the process of valuation NBFC shall submit an application to the Regional Office of RBI, this application shall be on the letterhead of the company. Any change in management of the NBFC after the takeover should also be intimated on a continuous basis to RBI.
Recommended Article: The Takeover of NBFC – NBFC Takeover Procedure.