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Redemption of preference shares

sathish kumar (manager) (41 Points)

21 March 2014

Dear All,

A Pvt Ltd holds 75% optioanlly convertiable preference shares OCPS in B Ltd Public Ltd. Now under New CA 2013 prefrence shares are also inculded in the definition part of holidng co. Due to this A Pvt Ltd become holidng of B Ltd. The Co. palnning to reduce A Pvt Ltd OCPS. Also the Co. inccur loss, so it can redem U/s. 80 out of proceeds of fresh issue. Whether the security premium account can be used to redem the nominal value of shares or it violates sec, 78 of the act.

Pls let me know what all are the posibility for reducing the shareholding of B Ltd.

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4 Replies

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 21 March 2014

Pl note that both Securities Premium A/c and Preference Share Capital A/c are liabilities of B Ltd. How can you use one liability a/c for reducing another liability a/c? If you debit both liability a/cs in your books, which a/c you will credit with double the amount? From Sec.78(2) you will find that when Securities Premium A/c is debited in books, another Asset A/c (e.g. Preliminary Exp.A/c) will be credited or a new liability a/c will be created (e.g. bonus shares).

If you do not have profits and fresh issue will not serve your purpose, the only option left is to get approval of High Court for reduction of share capital u/s 100.

sathish kumar (manager) (41 Points)
Replied 21 March 2014

Ok sir I agree with you. section 78 the act says if you use security premium account other than (2) then it will be consider as redcution of cap..

A Private Ltd and B Public Ltd are group co. Why wont A Private Ltd transfer its shares to X or Y to make it share holding less than 50 %

Also pls let me know consequence & compliance if A private Ltd becomes holding of B Public Ltd.

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 21 March 2014

Yes, of course option of transferring the shares to some other company is there in case you get a buyer. However, if you want to reduce the capital (as mentioned in your query), there will be no other option but to get HC nod.

In case of holding-subsidiaries consolidation of financials will be mandatory under Companies Act 2013. Even associate companies (with 20% or more holding) will have to be consolidated.

sathish kumar (manager) (41 Points)
Replied 21 March 2014

thank you sir.

Whether the consolidtion provisions in the co. act 2013 is notified. I think not and it will take some time. So for the coming fy the co.s no need to consolidate. correct me if im wrong