Ministry of Corporate Affairs Current Affairs

Government makes demat mandatory for issue and transfer of shares

Union Ministry of Corporate Affairs (MCA) has mandatory for unlisted public companies to issue new shares or transfer of all shares in dematerialised or demat (i.e. in electronic form) form beginning October 2, 2018. With this, major benefits of dematerialisation of securities will now be available to unlisted Public companies.

Key Facts

The Companies Act 2013, provides for government to mandate that as in case of listed public companies other classes of public companies should also issue securities only in dematerialised form. MCA’s latest step is seen as measure for further enhancing transparency, investor protection and governance in the corporate sector. It also comes at a time when the ministry is clamping down on shell companies that are suspected of being conduits for illicit fund flows

Major benefits of dematerialisation of securities

It will help in elimination of risks associated with physical certificates such as loss, theft, mutilation, fraud etc. It will help in improving corporate governance system by increasing transparency and preventing mal-practices such as benami shareholding, back dated issuance of shares, etc. It will also ease in transfer, pledge etc. of securities and provide exemption from payment of stamp duty on transfer.

Unlisted Companies

According to Companies Act 2013, a public company is formed by seven persons or more, while for private company this number is two or more. If shares of such companies are not traded on stock exchange, they are called unlisted companies.

Month: Categories: Business & Economy Current Affairs 2018

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Government releases draft on cross-border insolvency resolution

The Ministry of Corporate Affairs has released draft on cross-border insolvency in order to strengthen Insolvency and Bankruptcy Code (IBC). It will help banks access overseas assets of company undergoing resolution. Similarly, Indian authorities will also be required to cooperate with foreign creditors to domestic company.

Need

The existing IBC provides for two Sections –234 and 235 relating to cross border insolvency but these are not adequate to effectively deal with default cases of domestic corporate debtor having assets and operations outside India. In many of ongoing cases under IBC, several companies have assets and operations outside India, for which legal framework is required to deal assets overseas.

Existing provisions only allow Central government to enter into agreement with foreign country for enforcing provisions of Code. Second, the government can issue a letter of request to country outside India seeking information. The draft norms have now been issued to plug these loopholes and have any effective resolution mechanism in place for cross-border insolvency.

Key Facts

The draft on cross-border insolvency favours adoption of UNCITRAL (United Nations Commission on International Trade Laws) Model Law on Cross-Border Insolvency, 1997. Under it, central government after entering into agreement with other countries may bring overseas asset of domestic corporate debtor into consideration of insolvency resolution in India. Initially, cross border insolvency framework will apply only to corporate debtors, but later it will be extended to cases of personal insolvency resolution as well.

UNCITRAL Model Law on Cross-Border Insolvency, 1997

On global scale, this model law envisages balance between liquidation and reorganisation of global companies going in for resolution. It has emerged as most widely accepted legal framework to deal with cross-border insolvency issues while ensuring least intrusion into country’s domestic insolvency law. Due to growing prevalence of multinational insolvencies, the model law has been adopted by 44 States till date, including Singapore, UK, and US.

Month: Categories: Business & Economy Current Affairs 2018

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