COMPANY LAW
| Cos bill may close doors on subsidiary maze Wed, 08 Sep 2010 23:04:06 GMT |
| The Economic Times Cos bill may close doors on subsidiary maze The new companies bill, which is being reworked by the ministry of corporate affairs, will seek to prevent businesses from using complex corporate structures to escape scrutiny of law. In addition to stipulating that a company should have only one investment firm, the ministry will modify the bill to prevent formation of multilayered subsidiary structures. At present, companies have multiple subsidiaries and investment companies, which makes it difficult for outsiders and authorities to understand their financial position. The ministry has proposed to make these changes in its submissions to the parliamentary standing committee on finance, which presented its report on the Companies Bill 2009 in the Lok Sabha last week. Companies will be required to inform the registrar of companies if the stakes of promoters or any of the top 10 shareholders changed beyond a limit to ensure audit trail of ownership, the ministry has proposed. The investor education and protection fund proposed in the companies bill could be used to provide immediate relief to small investors who may have suffered losses due to corporate defaults. The parliamentary standing committee had suggested last week that its proposals be incorporated in the bill. The panel headed by senior BJP leader Yashwant Sinha also recommended that unclaimed dividends and such monies could flow into the fund. The committee sought to empower small investors by recommending that recognised investors associations should be empowered to file class action suits on behalf of shareholders. The ministry of corporate affairs has offered to clear the ambiguity on issue of a regulatory overlap with the Securities and Exchange Board of India over tracking the end use of funds raised by listed companies through initial public offerings (IPOs). The issue of monitoring the end use of IPO funds was unclear with the present law silent on Sebi’s jurisdiction. In its representation to the committee, it said that the clause on “issue and transfer of securities” should also include monitoring the end use of funds received by companies, thereby giving clear authority to Sebi in case for listed companies. The committee also endorsed the ministry’s view that the securities premium account, which is in the nature of capital, should not be allowed to be treated as free reserves from which dividends could be declared. It, however, felt these reserves could be included while computing limits on loans and investments. The committee felt there was need for more clarity on the issue of one-person company and the exemptions available to them in the bill as it was a new concept. It also made recommendation to clearly define a public company. The ministry is likely to table the final version of the new law during the coming winter session of Parliament. While disclosure of any change in foreign institutional holding is required to be reported, specific details on the identity of the FII will ensure that their traceability becomes easy in case of any suspected money flow, said an official in the government, requesting anonymity. SMC Capitals equity head Jagannadham Thunuguntla said: “The proposal to ask for detailed identity of FIIs is new and encouraging.” He, however, said that it is doubtful if hedge funds using participatory notes could be covered under this proposal. P-notes are largely used by investors such as hedge funds that prefer to offer fewer disclosures to regulators in markets where they invest. |
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