Dear Members,
My query is can an existing loan standing in the books of the Company be converted into Preference Shares, can it be treated as allotment of securities for consideration other than cash?
Brief Facts;
One of our Public Company and a Private Company which is a Subsidiary of a Public Company is having outstanding Loan standing in the their books since 2012 and the company has paid interest on regular interval on the same. Presently, due to financial crunch, the Company is unable to pay the interest on the outstanding Loan, hence the Company with due consent of the Lender has decided to allot the Preference shares against the outstanding Loan in compliance with the preferential allotment guidelines as prescribed in the Companies Act, 2013 read along with relevant Rules framed thereunder. Can it be treated as allotment of securities for consideration other than cash but the contract containing the terms for conversion of the Loan into security is not executed earlier.
Understanding as per Bare Reading of the Law with the Rule:
As per the bare reading of the Companies Act, 2013 along with the relevant Rules framed thereunder, “securities can be allotted for consideration other than cash, if there shall be attached to the Form PAS-3 a copy of the contract, duly stamped, pursuant to which the securities have been allotted together with any contract of sale if relating to a property or an asset, or a contract for services or other consideration.
However, where a contract referred above is not reduced to writing, the company shall furnish along with the Form PAS-3 complete particulars of the contract stamped with the same stamp duty as would have been payable if the contract had been reduced to writing and those particulars shall be deemed to be an instrument within the meaning of the Indian Stamp Act, 1899 (2 of 1899).”
My Query:
In light of the above facts & provisions, can we allot the preference shares to the Lenders vide executing an Agreement in current date with the Lender for converting the Loan into Preference Shares on preferential basis?
Can the aforesaid allotment would be in due compliance of the law????
Kindly give your valuable advice/suggestions. Your prompt response in the instant matter is highly solicited.
Regards
ACS Dipika Verma
CAclubindia
