NBFC Company Takeover Procedure

NBFC takeover procedure has been simplified by the RBI. NBFC takeover is easier process in comparison to NBFC fresh registration. In NBFC takeover, firstly acquirer of NBFC should conduct due diligence and overview the financials of the target company. Under this, MOU is signed with advance money. In takeover balance sheet of the seller entity stands null after all its assets and liabilities are transferred to the acquirer. There are following 8 steps in order to complete the NBFC takeover.

1. Memorandum of Understanding

First step is signing of the MOU i.e. Memorandum of Understanding with the proposed company, it specifies that both the companies agree to enter into an agreement of takeover. It is signed by both the directors of the Acquirer Company and Target Company. While signing of MOU, token money is given by Acquirer Company to the target company. It shall also specify the responsibilities and requirement of each company.
2. Convene Board Meeting
After signing of MOU, Board Meeting shall be convened in both the companies to discuss following matters:
  • To fix day, date, time and place of convening Extra Ordinary General Meeting.
  • For passing resolution in EGM.
  • In relation to takeover scheme, reply to query of RBI.

3. Public Notice
After obtaining the RBI approval, public notice shall be made to invite any objection of the public which is taking place due to take over in two newspaper within 30 days of such approval.
4. Signing of Share Transfer Agreement
After the expiry of the 31st day of the notice in newspaper, share transfer agreement shall be signed and remaining consideration shall be paid by the acquirer company.
5. NOC from Creditors (If applicable)
Target Company shall obtain NOC from its creditors before the transfer of business from Target Company to Acquirer Company.
6. Transfer of Assets
After this, transfer of assets shall take place in case no objections have been received and RBI approved the scheme. But the transfer should not contravene any clause of the agreement.
7. Valuation of the Entity
Valuation shall be done in accordance with the rules provided by the RBI. The technique adopted for valuation shall be Discounted Cash Flow (DCF) 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.
8. Intimation to Regional RBI Office
After the process of valuation and approval of the takeover scheme, NBFC shall submit an application to the Regional Office of RBI. Application shall be on the letter head of the company. Any change in management of the NBFC after the takeover should also be intimated on a continuous basis to RBI.
Application made to the Regional Office shall contain following details:
  • Information of the proposed directors and shareholders.
  • Sources of funds of Acquirer.
  • Declaration by the shareholders and directors regarding their association with any unincorporated entity which is accepting deposit.
  • Declaration by the directors regarding no criminal proceedings have been initiated against them in past or are pending against them in any court of law.

RBI Compliance Group
Ozg Compliance & Regulatory Practice Center

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