Preference shares

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 September 2013 can anyone guide me on this :

1. the funds had been flown from XYZ Pvt Ltd to ABC Energy Private Limited on 31-08-2012.

2. the said funds were floated against issue of CCPS shares at a premium of Rs. 55/- apart from face value Rs. 100/-

3. the AGM for 31-03-2012 balance sheet was held on 29-09-2012 and the Annual Return in Schedule V was made with ROC until 29-9-12

4. we could not have conducted any Board Meeting or Extra Ordinary General Meeting or could not have noted any allottment or change in denomination of preference shares from Rs. 10/- to Rs. 100/-. since the then existing preference shares were mentioned in Annual Return until 29-09-2012 (the AGM date) was Rs. 10/- face value.

5. we can conduct the EGM only on or after 29-09-2012 or even on 30-09-2012 and file Form # 5 and 23 on a current date

6. the allotment of CCPS shares with premium can also be done on 30-09-2012 by planning the dates properly

7. the technical question arises here; that funds are received on 31-08-2012 in anticipation of CCPS : the only problem here is how to securatize such funds received in ABC Pvt Ltd in the books of ABC and XYZ.

8. Technically, we dont have any other option but to file the reclassification of preference shares on 30-09-2012 and also allot new CCPS shares on 30-09-2012. accordingly, we will proceed to file Form # 5, 23 and 2 in due course of time.

Querist : Anonymous

Querist : Anonymous (Querist)

10 September 2013 Now how to clarify this using sections ?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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10 August 2024 To address your query regarding the issuance and accounting for Convertible Cumulative Preference Shares (CCPS) amidst the procedural and timing issues described, here’s a structured approach to handle the situation:

### **1. Legal and Procedural Considerations**

**1.1. Allotment Timing and Procedures:**

- **AGM and Annual Return Compliance:**
- Since the AGM for the financial year ended 31-03-2012 was held on 29-09-2012, and the Annual Return as of that date was filed, the Annual Return would reflect the status as of the AGM date. The preference shares issued after this date would not be reflected in this return.

- **Board and EGM Meetings:**
- You must conduct a Board Meeting or an Extraordinary General Meeting (EGM) to approve the reclassification of preference shares and the allotment of CCPS. The meetings can be held on or after 29-09-2012. Ensure proper documentation and resolutions are passed.

**1.2. Filing with ROC:**

- **Form 5:** Used for filing the return of allotment of shares.
- **Form 23:** Used for filing special resolutions.
- **Form 2:** This form was used under the old Act for filing details regarding allotments, but now it has been replaced by Form MGT-14 and others under the Companies Act, 2013.

### **2. Accounting Treatment**

**2.1. Handling Funds Received:**

- **Receipt of Funds:**
- Funds received on 31-08-2012 for the CCPS should be recorded as a liability under “Advance Against Issue of Shares” or a similar account in the books of ABC Energy Private Limited.

- **Accounting for Allotment:**
- On 30-09-2012 (or the date you conduct the EGM/Board Meeting), upon allotment, the amounts received should be reclassified from "Advance Against Issue of Shares" to "Share Capital" and "Securities Premium" accounts.

**2.2. Books of Accounts:**

- **XYZ Pvt Ltd (Investor):**
- The amount paid for CCPS should be recorded as an investment in "CCPS of ABC Energy Private Limited" at cost including the premium.

- **ABC Energy Private Limited (Issuer):**
- Initially, the amount received should be shown as a liability (advance) and later reclassified as share capital and premium upon allotment.

### **3. Procedural Steps:**

**3.1. Conduct Meetings:**
- **Board Meeting:** Approve the reclassification and allotment of shares.
- **EGM:** If needed, to pass a special resolution for reclassification and allotment.

**3.2. File Required Forms:**
- **Form 5:** For reporting the allotment of CCPS.
- **Form MGT-14:** For filing the special resolution passed in EGM/Board Meeting.

**3.3. Reclassification and Allotment:**
- Ensure that reclassification of shares from face value Rs. 10/- to Rs. 100/- and the allotment of CCPS at a premium are properly documented and filed with the ROC.

### **4. Technical and Legal Considerations**

**4.1. Timing of Allotment:**
- Ensure that the allotment is made after the requisite approvals and meetings. Although the funds were received before the AGM date, the allotment needs to be legally ratified through proper board resolutions and filings.

**4.2. Compliance with Act:**
- Adhere strictly to the compliance requirements under the Companies Act, 2013. The process of reclassification and allotment should not conflict with any provisions related to timing and filing of statutory documents.

**4.3. Documentation:**
- Maintain detailed documentation of all resolutions, board and EGM minutes, and filings to substantiate the process in case of any future queries or audits.

### **Conclusion**

While the procedural timeline may present challenges, following these steps will help ensure compliance with legal requirements and proper accounting treatment. Consulting with a corporate lawyer or company secretary might be prudent to ensure adherence to all statutory requirements and to handle any specific technical issues that arise.

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