CS Professional Programme Group 2

8/3/2019 CS Professional Programme Group 2

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These nswers avebeen.wrirm:::,t:,"I.^tt:leopeshatheuroer_irui-r.i6ri,Eiliirrssist he studentsn o o.,r,-i.,^-r-^,-.1^'il '-i.Tt"'examnatio r s,no*"uj,.l5 : it",::';:,lJ :';:il:;:re o betreated s modeland the Institute. not i|. nr*"rs andnotasexhaustiveco rectneso oth wisoi?il"-#J"t:"::Hi:,J:'",:;ublished erein.

TheGuideline nswersontainhe nformationased rilli:n[,5.::ltt*.9 1th"ilx"fp,;;;;;";;;;",,studentsreexpectedobeweflu"r.uOiin in"u;;;ffi;::T,!:.y"/Rutesmadeptoixmontnsrioitl'ir,"ir",examtnatton

C O N T E N T SPage

MODULEI'1.FinancialreasuryndForexManagement2. Corporateestructurjngnd nsolvency

1


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PROFESSIONALROGRAMMEXAMINATIONJUNE201FINANCIAL,REASURY NDFOREXMANAGEMENTTime llowed 3 hours Maximummarks ,00

NOTE:1. AnswerFIVEquestionsncludingeuestionNo.1whicn scompulsory. ltworktng otesshould eshowndistinctly.2. Tables howinghepresent alue f < 1 and he presentatue fanannuityof < 1 or 1S earsareannexed.Questionl

Comment nany ourof the ollowing(i) A_treasuty anager asa significantole oplay n theoverallunctioningfaIlrm.(ii) A tirn's stockprice is not relatedto itsmix ot debt and equity financing.(iii) Depreciations a source of internal inance.(iv) A stable dividend policy is always preferable to ftuctuating dividend policy.(v) Riskand uncertaintyare quite nherent n capitatbudgeting decisions.

(5 markseach)Answer (i )Thedifferentoles f reasury anagerre ollows1. Originatingoles The reasurymanagernducts nd originatesystem faccountingor he irm.Routineccountingf he irm s hen arried utalongtheseestablishedystems. The treasurymanager omplies xhaustivJoperationsanualor heguidancef heusers.2. Supportiveoles The treasurymanager upportshe activities f otherdepartmentsased nconslrucliveoordination.3. LeadershipolesThis ole omesnto lay uringimes f exigency hich anoccur uringimeof systems read own.4. Watch og oies Treasury anagers heeyesandearsof hemanagement.As a processorf the inancialransaclions,e keepsa warcn n suspeclsbunglingnd raudsn he irm.5. Learningoles Treasurymanagerontinuouslyearnshe newaccountingconceptsnd echnologicalhangesndadoptshese hanges ith penmind;educatesther epartmentsf irms bout amages.

Answer ( i i )Theory f moderninancjal anagementbyFrancoModiglianindMertonMillerconcludedhat hevalue f a firmdepends olely n ts utur;earnings tream, nd


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PP-FTFMJune 20i 1 zhence tsvalue s unaffected_byts debt/equitymix.Theyconctudedha ta firm,s aluetems rom ts assets, egardless f how hoseassetsare financed.Th e theorywa s basedon reslrictive et of assumptions,marketswhichmprieserotaxes)..rheysed;;;;;rJ::i3lgell:ffi:fil,:]capitaltructures rrelevant..rfeb ii"""'.i"g ";;t"d ,n'riTg!-',",u,r" or he irmhanquityinancing,hen nvestorshoowned;ha;;;;; ".f"""rr"g"o debffinanced)firmourdncreaseherrncomevsetingrrosenares -n i .[in"gh! pro"""o". rus orrowedunds,o buysharesnan unteve-ragedfarr qrfiUi;i"u"r'""trrm.Thesimultaneouseting rsharesn he evera^g-edirir";J orirsi "iiiI["J rn n"unreveragedirmourd riveheprices f heslocks.to.tneointwnEreneia]Jes r ne wo irmswourdff;i?:':"r1'Jl'"'d,ffi;i;i"." i;p;i;;;';;;'1.""f#on"uisnore,atedorsAnswer1(iii)

As regarclsepreciatjon,t is a deductjonutof profjts f hecompanyalculatedsperaccountingules n hebas.isl estimateJ";ii;; ;;,ooriginatatuef he ssers.his.resutrsn eductron;"""r"fit|nfl;#il,;Xllhe irmhas o pay.esseraxes.ThisUrrg. rrnd.'il tie,iims. usuatty,heentiremount eductedowards eDra.cialionn iri"o "s"*t"i"'nJ,nu"","o ,heacquisitionnd eplacemenlt ixed ssets nd . .*"0 ""Jru,i."ii" "or.iiliiil :;3,11:Tro,",yo,,." rworkjns"upituroo"i".ffi:::"r;:if#"","i,i,:lBut here xjsts controversyhether epreciatjonhould e aKensasource fnternatunds.Whatever avbe he"rt.""i" "r.r"'' ";;;;;""r"r, the ac t emainsha t he depreciations a sum,that"."t upurr utor O;;n.:". retained ithinheusrnessnd inancehecapital eedsn thenor."f 6u.in!r" rourrne,ndas sucheprectationn rueacademiaense edeemed , " aour""oi ,n,"rnalinance.Answer (iv)

Astabre ividendoricv av eadohighertock rices ecausetsustainsnvestorsonfidences hey aluemorere.divioenl nich rJ."n"i"i"i" **,ved. rfdividendstuctuatenvestors aydiscount ith..orne"r"*nt"g"'p;;["t,ii i r""ro, " ,he iketjhood$':"""-1;i',:?liil[:'il:t1yi:li':5:";"i;1ffi""'"#J]io""o"'nonevearmayrnvestmentssed y nsritution;ilij:fl:.* thesecurityromheapprovedistof h;The djvidend olicyhas o be adapted o the naturean d envrronmentsf the irm,ndusvy ndeconomy.t tn" .o:llJ-,..:o"r"ilrg ; hig;tyiyirrcatndusrry,ike heachrneools ndustry,il s management.annot ieate hrJug;regurar ividendsstabitilyoesnorcxist.A lowpay-outn u"", p"ri"j'L"""iil"lilo:Lo"n, roronsederiJJ'r"rs" or""..t sbettero ;ra;;r",Jf""jj.r,:UHlill;Hlonlill:]#tempr toprotect-harehorders;;r.;;;;;;"rions inearninsso

Answer (v)Risk nduncertainty:apital udgetingecisionssurroundeoygreat umber fncertaintiesnvestmentspresent nd nvestment.rrtui". ii " futures uncertain


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J pp*FTFN4*June2011and ul lof risks. ongerheperiod f project,.reatermaybe henskanduncertainty.Theestimatesbout osl, evenuesndproft:smaynot6omerue."^^:l:! T1T:ertainty arequite nherentncapirat udgetingecisions. his ssooecausenvestmentecisionsndcapital udgeng are ctiois ot todaywhichbearfruitsn uture hichsunroreseen.uiure suniert# "no nuoru"i"r,.Theprojectionofprobabilityfcashnflows adeoday reno t ertainouealn[veorn uture. easonaliluc.tuationsndbusinessycles othdelive, eavympaci fon f,e"".f, inflows ndoutflowsrojectedordifterent roject roposars.hecostot caprrarhich rfers utoff atesmayalsobe nflatedr deilated nder u"in""""v"i" ilnoition..Inrrationnddefrationreboundoetfecthe nvestmentecisionsn uture eriodrendennghe degree f uncertainty ore everse ndenhancinghe scopeof risk.Technologicalevelopmentsre otherfactorsha tenhancehe degree f riskanduncertaintyy enderinglants ndequipmentsbsoletend heprojectutofdate.Allthese ircumstancesombinedogetherffect apitalOuOgeiingecisions.Question

(a) lndigoLtd.has he ollowing apital tructure:Ordinary hares f < 1eachRetainedarnings87"Debentures

Debentures < 110per< 100 ominal

< in Lakhs1000

t ou440

1600tnorder ounderlake programmefexpansion,hecompany equireso raiseadditional apitalof < 400 takhand threealternativeinaniing schemes reunder onsideration(i) A rights ssue,af nominalvalue,of an additionat A0bkh < I ordinaryshares; r(ii) issue, tnominalatue, 00 akh,17yoreferencehares f< 1:or(iii) lssueanadditionat 400 akhof8%" ebentures.Withoutheexpansion rogramme,ndigoLtd.'sestimatednnuat rofitbeforetnterestand tax in the foreseeableuture s < 200 lakh. f theprogrammeproceeds, his will rise to < 290 lakh.At present, he market vatues f thecompany's ecurities re:

Ordinary hares < S.4Oex-dividend)er shareand the last ordinarydividendwas20 paise per share. f expansion does nottake place, ordinarydividendsare expected ogrow at a constantrateot Z.S%per annum.After some initial fluctuations, he anticipatedeffect of expansionon dividendsand market values s expected o stabiliseas follows:


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PP-FTFM-June20 11

Market alueofanordinary hareMarket alueofdebentureser < 100nomtnalMarket valueof a preference share NAAnnualgroMh rate n ordinaryshares S.S%

Expansion Financed byRights/ssuer 5.60< 1 1 0

PreferenceShares< 5.80< 1 1 0

4.0%

Debentures< 6.00< 108

5.00/"1.14 NA

Inecompany'srofitss.ubjectocorporationaxatSsy"and hisatesunlikelyochange.ouare equiredo""t"uiat" i, ""li2,ti"irZur" tin"n"ingcheme:(i) thegearing ratio(ii) the profitavailabteper ordinary share(iii) Weightedaverage costof capital basedon market vatue.Calculationsmay be restrictedo two decimal places.

(14 marks)(b) Rani has nvested n a share.wh-ose.dividends expected o grow at 1S% torsears and thereafterat 5,"" il.titeot tn" "orp"ny.' iiJiut vatueof the share,fcurrent ividendsand< 4 nr""tot, ,uqriiJiiui"' ir i"rur, ," az. (6marks)Answer (aXi)Gearingatio PriorchargeCapjtalLongTermCapitatnevenueGearingatroor heexis t ing a l 7 Adntav^llat structure= { 16ff;;

= 0.275lf expansion rogrammeundedby ssuingordinary hares{ 440 akhs 44ni l obo atn 1 qoo akh , :o o.22

lf eitherpreferencesharesor debenturesare used o finance{ 4 4 0 a kh+ 4 0 0 a k h{ 1 6 O Oa kh R s . q 0 Oa k h=ffi=o.oz


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Answer (a)(ii) PP-FTFt/-June20 1.,rr"1lr""tl,,o*,nntablegivesprofit vailableor ordinary hares nder achcapitajParticulars Existing CapttalStrycture

( 7 )lssue4OOakhOrdinaryShares

( < )lssue400 lakh10o/o reterencesharesr { /

lssue < 40 0lakh ef g%debentures(< )Profit beloreinterest nd taxless DebenturernlereslTaxableprofitLess Tax 35 %

Lss PrelerenceSharesdividendProfitavailable ororornarysharesNo . of ordinary haresProtitpe r sh.re

2,00,00.000

35.20.0001,64,80,00057,68,000

1 4712,000Ni l

1 07,12,00a10,00,00,0000 . 1 0 7

2,80,00,000s5,20,0002,44,80,00085,68,000

I ,59,12,000Nil

1 59 ,12 ,00014 ,00 ,00 ,000

0 . 1 1 3

2.80,00,00035.20,0002,44,80,00085,68,000

1,59,12,00040,00,000

1 , 1 9 , 1 2 , 0 0 010.00,00,000

0 . 1 1 9

2,80,00,00067,20,)ao

2.12,80,00074,4a.ao1

1,38,32,000

1,38.32,00010,00.00,000

0 . 1 3 8Answer (aXiii)Weightedaveragecost of capitalbasedon MarketValueThe marketvalueof IndigoLtd.Existing apital s :

% in capitalstructurel,4arketalue fOrdlnaryharest ,00,000,000@ { 5.40 exdividend)ershareDebentures 44,000,000 Fs. t o0 @ { 110

540,000,000484,00,000 91 778.23

588,400,000 100.00lf additional haresar e ssued hr schange oOrdinaryhares140,000,000 ? 5.60)Debentures44,000,000+100@ {1tO 784,000,00048400000 94.195.81

&t2400000 100lf preferentialharesar e ssuedOrdinaryhares1,00,000,000@ T 5.80Debentures44,000,000+100@ < 110Preferencehares40,000,000 1.14)5800000004840000045600000

86.057 . 1 86.77

674000000 100


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PP-FTFM-June 011"/" in capitalSTTUCTUTE

l faddi t ionalebenturesre ssued:Ordinaryhares1 00,000,000{ 6.00)Debentures4,000,000{ 100@ {108

600,000,00090720000

86.871 3 . 1 3

690720000 100.00Costol eachelement

. l / 1 t ^ \Ordinary hares :r=g*gYaWhere d = dividend

g = growth atePo = priceof the r' ar e

Preference hares= d/P"Debenlures=/ PoInsertingalues elatingo present apital tructure(i) lf there s no expansion

0 . 2 0 ( 1 0 . 0 2 5 )Ordinaryhares ---?s.+O- + 0.025= 0.0:17'0.025= (J.i),-.:.

1 C 0-i10

= A . C 'TheWACC= (91 77% C.C63) (8.23% 0.07)= 5.78+0.58 6.36%

(i i ) l f expansions hroughssue f r ights hares

Debentures

For ightsssueOrdinaryharesDebenturesWACC 94.19

0 .2 ( r+0 .035+ .035 = 0.07{ 5 , 6 0gz".l1!! = 0.07r 1 1 00.07+ 5.81x 0.07= 6.59+ .41=77"

ThereforeWACC s 7%


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: : : : : : = : : : : : : l l : : : l l l - - \

7 pp-FTFM_June2011(iii) lf expansions hroughssue lprelerenceharesordinaryshareso-20 1- o 04)< ).80 r 0.04 0 08Cost fcapital tDebenturesnchanged.07Preferencehares 1.!1o'10.0=nno7 1 1 AWACC= (86.05% 0.08) (7.18% 0.07) (6.77% 0.09) 7.93%lf debentures re ssuedordinaryshares g?+*q# +0.05= oe

8 % x { 1 0 0_ ^ ^ -{ 108WACC (86.87% 0.09) ( i3.13% 0.07) 8.35%Answer (b )

Calculationof presentvalueof dividend at 15% or 5 yearsYear Dividend pVF@6% presi;eiiaGD,=Do(1+g)'1 4(1+.15), 4.6000 0.94342 4(1+.15), 5.2900 0.g9003 4(1+.15)3 6.0835 0.83964 4(1+.11la 6.9960 0.7921

4.33784.70815 . 1 1 0 15.54085 4(1+.1 )5 B.O4S4 0.7473 6.0099

31 0149 25.7067Total dividendsof < 31.01 are expected n th e next 5 years, whrch is Np Vof < 25.70@ 6%.The valueof equityshareat the en dof the6t hyear :Dividendor 6'h ea r

= D (1 + q )= 8.0454 1+0.05) 8.4426P,=Du(k"-9)= 8.4a76 (0.06 0.05) < A44.76


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PP-FTFM-June 011 8So he sharePrice s { 844 76PresentValueof this @ 6% =.844'76 7473= T 631 28Valueof share= present alueof dividend present alueol expected rice= 25.71+ 63'128 = { 65 6 99 = t 657

Question3(a) PeacockLtd has beenengaged n manu.facturing f^textiles t has a currentsa/esof < 3OArn per ainJnl The costot sales s 75%of salesand bad debtsare 1/" ot sales The "i"f of "ut"" comprises87o/o ariable costs

and 20o/ofixed cost,while thecompany'srequiredrate of.return

is 12%' The companycurrently allowscustomters0 days' credn' but is now considering ncreasingthis o 60 days'credit n order to attract morecustonersIt has been estimated hat thischange in policy will increase salesby 157"'while bad debtswi increase rorh ly. to qy". tt is expected that the policychanqewilt not resunn any increasen tixed costs'creditorsand stock level'ShouldPeacock td.ntroduce roposed olicy?

(b) The ollowingnformations relatedo Evergreen tdUnitcostOrder ostInventorYarrving ostBack rdercost stockoutcost) < 20Annualdemand 2,000units

Youarerequiredocomputehe ollowing(i) Minimum ostorderquantitY(ii) Time etween rders(iii) Minimum umber fbackorders(iv) Maximumnventoryevel(v) O'/erull nnual ost'

Answer (a )Current evel fSales t 30 Lakh

, NewLevel f Saleswillbe, 30,00,0001.15= 34,50,000Variable osts 80% 'Variableosts re807'ol Costof Sdles'x 5%= 60"/'of salesContributionromSales 40%of Sales

< 200< 320< 4 0

(10marks)

(2 markseach)


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PP_FTFM_JUne011

Proposednvestmentndebtors4,50,000x0/365Currentnvestmentndebtors0,0O,OOO30/365Increasen nvestmentndebtorslncreasencontribution15% 30,00,00040% . . . . . . . . . . . . . . . . . . . . . . . : . . . . . . . . .A )New evel f baddebts 34,50,0004%Currentevel fbaddebts 30,00,0001%IncreasenbaddebtsAddi t ionalinancingosts 3,20,54g1Z%....(B)Saving y ntroducinghangenpoticyA_ B)Thechangen inancing olicys financiallycceptablelthoughavings reno tverysubstantialNoles: nvestmentnDebtors asbeenaken tSelljng rice.

Answer (b )HereA = Annualemand 2000 ni tsB = BackOrderCost= 1 29C = Inventory arrying os t= { 40D=OrderCost= Rs.320(i ) i/inimum ostorder uantity

j2x 2000x 20(20- 0)= l 40 n = V32000x3= v56ooo = 309.83 R 310Units

Time etweenrder[4inimumostOrderQuantitv Q/A= 31 /2000 0.1 5Annual emand

0.155 ear r0.1 5x 12= 1 86months

5,67,1232,46,5753,20,U81 80,000

1 46,46633,534

(iD

1,38,00030,000

(-)1,08,000(-)38,466


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PP FTFM-June011 10(i i j ) [ ,4 in imumumberfback rders:Le tbackordermaybe = SS = QC B + C = 31 x 40 ZO+ 40 = 12400160 206.67 r 202units(iv) lvlaximumnventoryevel e-S = 310-207 103units(v ) Overall nnuaj os t purchaseos t = 2000units@ { 200 = 2000x 200={ 4,00,000AlternativeolutionPurchaseos t 200x 2000OrderCost 000/310320Carryingos t103 40 2Total < 404124.51

Question4Distinguishbetweenany four of the folowing :(i) 'Currentaccount'and 'capitalaccount, n balanceof payment.(ii) 'Foreigndirect nvestment'and ,portfolioinvestment'.(iii) 'Askprice' and 'bidDrice'.

(iv) 'Horizontalcapital structure'and 'vefticalcapitalstructure.(v) 'lnvestment'and 'speculation'. 6 marks each)Answer4(i)The currentaccountof the BOPcomprises rade n goodsand services. n otherwords, hecurrent ccount alanceakes nt oaccounlexports,mports, nd net oreignrneomerom unilateralransfers.Th e capitalaccountof the BOp, on the otherhand,takes nt oaccount ross-borderlowof funds hatar eassociated it h inancial r otherassels n he rading ountries.Forexample,hedirectand portlol ionveslments ad eby oreign nvestors,in ndia,are captured y the capjtalaccountbalanceof the BOp.Thecapital ccount ls oencompassesoreign nvestmentsf Indian ompanies,oreignaidandbank eposi ts fNon-res identndiansNFl) .

Answer4(ii)Foreign irect nvestmenlmeans nvestmenty non-residentntity/personesldentouts idendian hecapi ta l l he ndian ompany nder cheduleof FEIMTransferrlssue f Secur i t iesy a personResident uts idendia)Regulat ions000.Port fo l ionvestment ain lync ludes l ls ' investment,unds .a isedhrough DRs/ADFs by Indian ompanies nd hrough f fshoreunds.Dataon investmenlbroad,hitherto eported, av ebeensplit nt oequity apitalandpoffolio nvesrmeni.

Answer4( i i i )An ask price s the rate at which he marketmaker s ready o sell a particularcurrency ai r .This s the pr ice hata t rader s feadv o receiven order o sel l he

{ 4,00,000{ 2064.51

2060


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'I I pp-FTFM_June2011currency. he bid/ask ombjnationomprises quotation, hich sbasedon a floatjngxchange ate.The quotationists he bid pri"" fj*, tn""',n"'fst price.A bidprice s the rateut 1T"_l ,lu.ryrker maker s preparedo buya specjficurrencyai r n heForexradingmarket. his s nepriceiirai rrader i, paywhenuyingcurrency.Answer (iv)

In,aHorizontalapital tructure,he irmhaszerodebt omponentn hestructuremix.Thestructuresquite tabre. xpansionr n" rira uk". il a taterar anner,.e.hroughquiry r etainedarningnry. heabsencefoeoires-uiisn re rack f inanciarleverage.robabilityfdisturbancef hestructures remote..

Ina vertlcalcapitaltruclure,hebase f hestructures ormeo ya small mountorequrtyhare apitar.his ase erves s he oundationnwhichhesuper tructureof preferencehare apital nd_debts built. he n"r"r"nt"i uoOitionn thecapitalstrucruresarmost ntireryn he orm f debt. runtrr or iu]neoearningss ow ndthedividend ay-outatiosouite tgh.nsucha .tru",ure,lf,l o. tof equity apitalsusuallyigherhan hecostof debt.he high ompone"i;i;;t ," thecapitartructureincreaseshe inanciarisk f he irm nd en-dershe tru"t " unli"or". n" firm, ecauseof he erativelyesseromponentfequityapitar," urrn"iu# io-hostrreakeovers.Answer (v ). lnvestr,lentaybedefinedsa consciouscton hepart fa personhat nvolvesdeploymentf moneynsecuritiesssued y irms/companiesrth view o obtaintargetateol return vera specifiederiod i ime.

Speculat ionisonvolveseploymentf unds ut t snotbackedya consciousanalysis f prosandcons.Mosty t is a spuror nemomeniaitivityha t s promotedand upportedyharf-bakednformationnd umours.pecutativeeptoymentf undsisgenerallyrevarentn hesecondaryquitymarket. nii"tii""t. p""pr" ospecurationisa rate f eturnhatsabnormalyigneitnanheprevuri"g"rk"t .ut"r.Thebarancingof rskand eturn evertheressperatesnspeculativectivityrso ndassuch he iskelementnspeculationsveryhign.Question

(a) ExcerLtd. sconsideringnvestingna riskyprojectwhichwourd e addedoanexisting oftfolioof investment rojects,aiso'subjecto risk. t envisagesixpossible tatesof the economy or which t has estimatedrobabilities ndoutcome s followsStateof probability Retum n Return nEconomy Existing ofttotio proposed roiects

1 0 .12 0.23 0.24 0.35 o . t

12 %14%15%16%18%20%

8%10%12%10%1 4 %6%. 1


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PP-FTFM-June 01Youare required o determinewhether he projectshouldbe accepted. he risk-free rate of return s 6/". (10 marks)(b) Thefo owingdeta s of AtphaLtd. for theyear ended 2010 are turnished

3:1< 20 lakhCorproateax ate 40%Variableostaspercentage f sales 0%Preparencome tatement f thecompany. @ marks)(c) Mohanhasa portforio t 6 securities, achwitha market arue t < 10,000.

Thecurrent eta I ) ol thepaftfotios 1 30 andBot therisKastecuritys 1 80.Mohanwishesoreducehispotlfolio g to 1.15byse ing the riskiest ecurityand eplacingt withanother ecuritywitha lowerg. Whatmust e theF of thereplacementecurity? 14 ma/1Ks)Answer (a)

FinancialeverageOperatingeveragelnterest harges erannum

'Dateofreturn Rpt-Rpt (a) FlptRipt (b)Probability R x P t R ix P t dp (a)(b)p

. 1

.1

. l

. 3

1 2i.1.2)1 4(2.81(s.0)(4.8)

1 8( 1 . 8 )2 0(2 .0)

1 5 . 6Rpt--1 . 6

8( .8)1 0(2.o)

(2 .411 0(3.0)1 4(1 4)06(0 .6)

Rpt--10.2

-3.6 - 2 .2- 1 . 6 - 0 . 2- 0 . 6 + 1 . 8

+ O.4 -0.2+ 2.4 +3.8+ 4- 4 -4.2

1.296 +.792.512 +0.064.o72 ( " ) 216.048 l-) .024.576 0.912

r . 9 3 6 ( - ) 18 4 84.440 +1.768- 2.088

-.32CovarpiB = = ( - 1 . 3 2 / 4 . 4 4 ( 1 . 0 7 2vaflarcepFlequed ate f returns

Rft+ BRp= 6 +. .072x 9.6)where p= Rpt_Rr 15.6_6.0= 9.61= 6 - . 6 9 1 5 . 3 0 9Theexpectedate f returns .l0.2?",theretoreheprojecthould eaccepted.


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I J PP-FTFM-June 01 1Answer5(b)IncomeStatementof Alpha Lld. (For he yearended2010)PafticularsSalesLess Variable ost (60%ot sales)ConkibutionWN-2)Less: FixedcostexcludjngnterestEBrTwN-1)Less InterestProftBetore axLess Corporateax @ 4}okProfit fterTaxWorkingnotes(1) Financialeverage2:1Flnancialeverage EBIT/pBT

EBIT 2EBIT tnr 1= _lqr_=3EB|T 20 1EBIT 2(EBIT-20)E B I T = 2 E B | T - 4 02 E B I T * E B I T = 4 0E B I T = 1 4 9 ; 2 L 5 .

(2) Operatingeverage3:1operatingeveraoe conlribution- E B t r - = 3= Contribution40= 3/1contributjon3 x 40 = < 120Lakhs(3 ) Variableos t s600;of satesContributioni 00_ 60= 40%of salesContribution 120 akhsHence ales 100/40 12QSates= 300 akhs

(< ln lakhs)30018012080402020I


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PP-FTFl,4-June011Answer5(c)

1 4

Beta fa portfolio weightedverage etaof heconstituentecurities t WiBiThecurrent etaof Mohan's ortfolio 1 30l\4arketalue l the otal ortfolio < 10,000 6 = < 60,000Weight f each ecurityn heportfolio < 10,000/60,0001/6Sum f hebetas fs ixsecuri t ies1.30 6 = 7.80Thebetaof heportfoliofter eplacementf security= 5Sumof henewbetas f sixsecurities 1 i 5 x 6 = 6.90Since heriskiest ecurity itha betaof 1.80 s replaced,t means.Sum fbeta fexistingecuritiesbeta f eplacementecuritynewB ofsecurities7 . 8 0 - 1 . 8 0 + X = 6 . 9 06 + X = 6 . 9 0X = 6 . 9 0 - 6 . 0 = 0 . 9 0Thus,hebetaof he eplacementecurity 0.90

QuestionFollowingnformations extracted rom hebooks of PerfumeLtd.at the end offinancialear2010-1

Netsa/esDebt-assetsatioDebtorsurnoveratiobasedonnetsaleslnventoryurnoveratioFixedassets urnoveratioNetprofitmarginGross rofitmarginReturn n nvestmentBalanceSheetas at 31stMarch,20 11

< 20,00,0000.62.0

0.805%

25%2%

LiabilitiesEquityLonglerm debtsShoftlerm debts

AsselsNet fixed assets

? lnventory10,00,000 Debtors

Cash

2 ?????.'..-.''.


16/37

carcurate15 , PP-FTFM-J,.e 01

(i) Theworking apital vailabte ith hecompany n3l stMarch,201 .(ii) ltspermissible ankborrowings sper secondmethod ecommendedy theTandonCommittee. (20 marks)AnswerWorkingNotes

(a) FixedAssetsFixedAssets Sales/Fixedssets urnover atio= < 20,00,000/0.80 = - 25,00,000(b) GrossProlitGrossProft ,4arginGrossprofjt/ netsale 10025%= GrossProftl< 20,00,000GrossProfit 25"kot . 20,00,000 < 5,00,000(c) tnventorylnventoryCostot Sales/lnventoryurnover atio= Sales Rross rolit/ Inventoryurnover atio= < 20,00,000- 5,00,000/i .25lnventory{ 12,00,000(d) DebtorsDebtors NetSales/Debtorsurnover atio ased n NetSales= < 20,00,000/2.0= < 10,00,000(e) NetProtitNetProfitMargin Netprofit/ NetSales .1005oo nelprof iu< 0,00,000Netprof i t 5%of Rs.20,00,000{ 1,00,000(f) lnvestmentReturn nvestmentNetProft Investment1002%= - 1,00,000Investmentlnvestment100/2x 1,00,000= 50,00,000(g) TotaldebtDebtAssetsRatio Debts TotalAssets lnvestments)0.6= debts/< 0,00,000Debts 0.6x < 50,00,000 { 30,00,000(nt Capitat Equity)Capital TotalAssets TotalDebts= < 50,00,000- 30,00,000=20,00,000


17/37

PP-FTFM-June01 16(i) Shoft ermdebts < 10,00,0000 Long ermdebts

LongTermDebts TotalDebts Short ermDebts= < 30,00,000-< 0,00,000=20,00,000

Now n hebasis fabovenformation,ecanpreparehebalanceheet sat31stMarch 01 asunderBalance heet s at March 1st.201

LiabilitiesEquityLong ermdebtsShortermdebts

t Assets20,00,000Net ixedassets 20,00,00020.00.000 nventory 12.00,00010,00,000Debtors 10,00,000

Cash batancinggure) 3,00,00050,00,000 50,00,000::_(il Working apital son March31 2011

Workingapital current ssets currentiabilities= (tnventorydebtors cash) short ermdebts= < 12,00,000+0,00,000+,00,000 - 1O,OO,O00= < 15,00,000(iil P^ermissibleankborrowingsspersecondmethodecommendedy TondonCommittee2"dmethod= 0.75 currentssets)- currentiabilities)= 0.75 < 25,00,000- 10,00,000= < 18,75,000-< 0,00,000= { 8,75,000

QuestionWritenotesonany fourol the ollowing(i) Sweatequity hares(ii) Benefits t depositoryystem(iii) Operatingycte(iv) Risksn forexmarket(v) lnterest ateparity. (5 markseach)


18/37

1 7 PP-FTFM-June 01Answer (i )SweatEquityShares

Sweat quity hares anb-essued y hecompanyoemployeesrdirectorstarscountr orconsiderationtlrishtsnireaiJr;ilff;::'Jffi,i:ldiJ;:l'ji; :l#r'o* 'ar,s"uairJrJSweat qulty hares reshares iveno employeestcompanyor theeffortsork heypu t n. These harr',r",r,etuiru*rne;;;#;:;fi:J:T":l1:,iil3',:ff lrX*.rHj:i:li^:lhe/she s a partowner n hecompany.Sweat equityshare js a instrument ermitted o be issuedby speclfied ndjanompanies, ndersection79A of companiesnct, rgio. n'JJoroinqo this sectionaubliccompanymay issuesweatequitysharesof a "t"a. ot "iur"a arreadyssued fhe ollowing onditions re ulf l ted:- The ssueofsweatequity^share-isuthorjsed ya special esolutionassedbyth ecompanyn he generalmeeting.

- The esolutionpecifieshenumber fshares, urrentmarket rice, onsiderationtf an y and heclassor classesof directors |."rnffof""",o rnom suchequitysharesar e o be ssued- No t ess han oneyear ha selapsedat thedateof the ssue,since he dateonwhich hecompany asent i |ed ocommence rain" .a.- Th e sweatequitysharesof a companywhoseequitysharesare risted n arecognjsedtockexchange re ssued naccordance lth heregulations ad eby SEBI n this regard.Al l the limitations, estrictions nd provisions elating o equrtysharesare alsopplicabreo suchsweatequityshares ssuedunder he ne wsectron79A.Answer 7(i i)

Benefitsof depositorysystemIn th e depository ystem, he ownership nd transferof secuntresakesplacebyeansof electronic oo kenlries.At the outset, his system iOs ne capitafmarketo,ll:, qi:g"* retatedo handtingfpaper. he"v"tu#pro"ij".* umerousrrectndndrrectenefts , ike:- Elimination t baddeliveries- Eliminatlon f all risksassociated ith physical ertit jcates- lmmediateransfer nd registrationf securities- Fasterdisbursemenl f noncashcorporate enefitsike ights,bonus,etc.- Reductionn brokerage y manybrokersor radingndemateriarisedecurities- Reductionn handling f hugevolumes f paperand erioo,c tatus eports


19/37

PP FTFM-June 011 18- Elimination f probremseratedo changeof addressof nvestor,ransmission,etc.- Elimination f problems elated o sell lng ecurities n behalfof a minor.

Answer 7(i i i)OperatingCycle

The operating ycle is the lengthof time between he company.s ultayon rawmaterials,wagesand otherexpenditures nd the inirowor cash from he s;re of thegoods rna manuracturingusiness, peratingycre s heaverageim e hat awmateriarremarnsn stock ess he periodol credit aken rom suppliers, lus he time aken orproducinghegoods, lus he ime hegoods emainn n shednventory,lus he imetakenby customers o pay for the goods.Operating ycle concepl s rmoonant ormanagementfcashan dmanagementfworking apital ecausehe ongerheoperalrngcycle he more inancial esourceshe companyneeds.Therefore,he managemen-thas o remain autiousha t heoperating ycleshouldnotbecome oo onq.Answer7(iv)Risks n forex market

operationsn he orexmarket reexposedo a number f risks.These isksar easu n d e r :(a) credit is karising ut of rendingo a foreign orrowerwhosecredit ating s no tknown orcertainly(b ) cunencyriskof trading n a currencywhosestability nd strengths known of luctuaie(c) country isk nvorvedndear ingn hecurrency fa country hose or i t icarndeconomic tability s uncertain(d ) solvency iskdue o mismatch etween urrentassetsand iabilities t dealersand resultant efault n meetingorward ommitments.

Answer7(v) ,,..Interest at eParity: ccordingo nterest at eparilyprinclple,he orward remium(or discount) n currency f a country is-a-vis he currency f another ountrywi I beexactly flsetby he nterest at ediflerential etweenhecountries. he currencv f thecountrywith lower nterest at e s quotedat a forwardpremiumand vrce-versi.Twoassumption entral o interest atesparityarecapitalmobility& perfect ubstitutabil i tyot domestic nd oreign ssets. orexampre,he pR conditionmplieshat heexpectedrelurnon dollarasserswillequaltheexpected eturnon oreign urrency ssets, ue oan equilibriumn oreign xchangemarket esurtingromchanges n heexchange at ebetweenwo countries.


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PP-FTF[/-June20 119

f r * $ F l P E E F E E R g g H F s i E s b n ; i 3 : s S I S : : : : g E : g g g g E gf r H $ H H F F H E i T s F E R P s ,; r : i 3 s s : s 5 5 5 : : g g 5 g g 5 g g, n g gg ss s : : : : eg E 5{ * f r F 9 ; E s B b B p p: 5 3 : B 3 3 s 5 s s s : g 3 3 : : g 3s - ! 3 6 & E H f E H H g $ F f ;s s f l R s s' g g S g g E S S s : 5 ; ; : : : g g-u ori r = $ g g $ H g $ $ F $ R F E E E s e

H- c i d c j 6 ; ; i J ; : i : . o o c j . ; ! ! ; : ;a 5 - s s s H d : H H S s s E * K g g g 8 $H = E B : s : : I E I E S . d ; : j ; : s ; : :2 t r l g s o3 $ ' S g 3 i E g l q E H $ E s fF s s s s P* o o o cj d o o ; I i H e R I A F I -z o o o d d ; : j < j ; :B E * F F N E R s : R ; e Py ; : e e i r i $ ; F $ $ g g f ; g ? S F f i S : : 6t o o c i ; ; ; : : : S S S X * S S S

" E: ; . F e E H E S S g H H f r E E s F e s s R : -- - , * ' ; : : 3 3 3 5 S : : 5 3 5 s n : e - H H ga j _ o o d c ; o d ; ; i J S sF f f , " S E H A g s F R s I :. , ' - : 5 s s s s 5 5 5 5 5 3 3 3 3 E 5 En ' " S F F F $ p s f i F H E ; a s3 : 5 5 5 5 g g 5 q 5 5 5 3 3 5 . 3 3 35 _ f r H E E N e : e ; e e l" , 5 3 5 s s 5 g 3 g $ 3 55 5 5 I; " F E i f ; R g S E H F a s s s $ s e e : o s : : : s E : S 5 g EEf r - * $ S B x E B R p r v ! e -, , 5 s s 3 EEg 3 3 ! ;5 E5 E3 3 $ 5 5 EE! x d r s s $ f r *$ s F * $ E a H * N$ * $C o n t d . . . . . . . .


21/37

20P FTFM-June 011

" s , n=es : : e s * e g l c $ E3$ $ I gg E ' r F p ; :e g 3 f i F $ H g : g f i

i - g ; : F : E s : i $ *$ $ $ $ s FF = g F x $ s F g g H E $ S i l g qf r - $ g F e $ F x s : g f i * ; H 5f i = e f r p p : x 3 : * g S ; $ $ E

i " r i t i F g x i H f r l f f f i i l : i l if t . $ f ; 3 S 8 $ F F F G i q s B q F E ! e E ss - 5 5 5 5 : : : I E P -s _qE E I g : : :! - c g E g g E E s 3 E g 5 E E g E. . $ 6 f " ; - E : 1 " $ u " E * E $ I N $ S $

5 8 " : F * $ rr l ; $ r g E : e H sz: f g f i; H r r : E e e $ * $E E f l s f r: E " H r r s : i i $ $ e s $ ; s si y h p B R t s if ; ! ' H s r s $ g * i g 3 s g f i3 f s s g F!: T " $ $ ? H Ee e g F $ ; : :f t E H * fg T = E s H i B: E X F E x x F f if i: $ F


22/37

CORPORATE ESTRUCTURINGND NSOLVENCYTimeallowed 3 hours Maximum marks 100NOTE: 4// references o sections elate to the Companies Act, 1956 unless statedotherwise.

PART A(Answereuestion No.1which s comDulsorvand any threeof the rest rom thispart)

Question 1(a) Big Ltd.prepareda schemeol amalgamationand arrangementwith Small Ltd.and LittleLtd. and the scheme hasgone through he required formaritiesandcourtapproved he scheme, n whichtheswap ratiowasprovidedas under :(i) The transferotCompany No.1- Small Ltd. The shareholdersof SmauLtd. willget one equityshare of tl0 eachof Big Ltd. or every 2 shares ullypaid-upof Sma Ltd.

(ii) ThetransferorCompany No.2 LittleLtd. : The shareholders t LitfleLtd.willget one equity shareof ?10each tu ),paid_up or everyS equity sharesfu y paid-up of LittleLtd.There wereno other typesof shares n the companieson the recorddatefixedfor swap ratio.Thecapitalstructureof the transfereecompany (amalgamated ompany)and the transferorcompanies amalgamating ompanies)was as underonappointed date, and there was no change in this regard upto date asaforesaid:PafticularsEquity harecapital Nos.)Fullypaid-up quity hare@ 0 each 4Reserves ndsurplus fl

Total ?)lnvestments t Big Ltd.

Equitysharesot SmallLtd.of fl0 each u y paid-upnSmattLtd -

Big Ltd. Small Ltd. Lit e Ltd.10,00,000 8,00,000 7,00,000

Equity haresNos.)Nominal alue flPaid-upvalue QEquityshares f LittleLtd.Equity hares Nos.)Nominal alue QPaid-up alue 4

100,00,000 80,00,00050,00,000 70,00,000

1,50,00,000 1,50,00,000

3,00,00030,00,00030,00,000

of A0 each u y paid-upn Lit e Ltd.2,00,00020,00,000

20,00,00021

70,00,00050,00,000

1,20,00,000::_-:=


23/37

PP CRI-June 01As a CompanySecretaryand CFO ol Big Ltd. the transfereecompany),howouldyou deal with-(i) the issues or eftectingthe allotmentof equity sharesof Big Ltd. forwhichshareholders,pprovalwas eceived ndersection 1ft i).. (3 marks)(ii) the numberof equity sharesol Big Ltd.of ?1 each fultypaid_up o beBsued to the shareholdersof SmaltLtd.and Littte Lt(l (6 marks)And alsostate hat he totalnumberof issuedequity sharesof Big Ltd.aftersuch allotment.

(1mark)(b) state whether he olowing statements re trueor farse itingbriefryrerevantprovisiansot the aw .(i) A company seeking amalgamationwith another company, passedaresotution ndersection391(2),as per directionof thecourland did notfile he same with he Registrar f Companiesunder section192,on theplea that it is neitheran ordinarynor a special resolutionbut an extra-ordinary resolution.

(ii) A companycalleda meetingof membersof thecompanyunderdirectionof the coutl foramalgamationwithanothercompanyand excluded theproxiesfor thepurposeof countingquorum.(iii) Thedateof agreementmadeby themerchantbankerwith heacouirers- treatedas,deemeddateof offer,for hepurposeof acquisition f sharesand/orcontrol n the targetcompany.(iv) Theordersanctioning he schemeof amalgamationmadebv the courtshoutdbe f led with he Begistrarof Companies.f theorde; s not itedwith the Registrarof Companies, t willnot have any effect.(v) Every noticeof any meetingcalledas per ordersof courl under section391 shall not includeexplanatorystatement. (2 markseach)

(c) Explain the circumstances where reduction of share capitar s done withoutconfirmation y thecour|. (S marks)Answer1(a)(i)

After eceivingheorder rom he Hon'bleCourt,a copyof the coun orderbe fi ledwith RO C o make he mergerelfective n th e ey eot law.A BoardResolut iono be passedoral lotment f equi ty hares f Rs.10 ach ul lypardup o thesharehordersf th e ransferor ompanies nd ire henecessary -rorms(e- 'orrr )wj thRegist rarl Companies.The nvestmentn he smalrLtd.and Lifle Ltd. o be writtenoff and cancefledromthebooks f B iqLtd.


24/37

P P - C F l u n e2 0 i 1Answer aXii)Thenumber f equity haresobeallottedo heshareholdersfSmall td .

Th e numberof equjtyshares o be issued o the shareholdersf LlnteLtd.

Paid pequi tyharesNos.)Less Cross oldingbetweenransferornd{ranslereeompanyliableobecancelled)Netnumber fsharesobeswappedSwap atioNewshares fBigLtd. o beallotted

No .of paidequitysharesLess: Crossholding etweenherransreroran d ransfereeompanyNetShares o be swappedSwapRatioNe tshare o be allotted

Bi gLtd.No .ot equity haresbeforemergerAllotted o shareholder f SmallLro.Allotted o shareholder f Litf leLtd.Tota,No. ol issuedshares

8,00,0003,00,0005,00,000

2,50,000os.

LittleLtd.7,00,0002,00,0005,OO,O0O

1 : 51 00,000

/Vos.10,00,0002,50,0001,00,000

13,50.000

After heallotment,he otalnumberof issuedequitysharesstandsas under:

Answer (b)(i ) True.A ulr ench f hepunjabandHaryana igh o .ulinHindLeverhemicarsLimitedndAnothel2005] 8SCL211(punj. Har,) etdhat he anguageiSection 91(2) f theAct s totally nambigror" nJ u-pr",n eading f thisprovisionlearly howshat hemajoritynriumber y whtch compromiserarrangementsapprovedhouldepresenthreeJourthnvalue f hecreditors/shareholdersho are presentandvotingancl ot of the otatvalueof thesharehordersrcreditorsf hecompany.his isneither norornaryesorutionnora specraresorut ioni th inhepurviewfsection gg f heAci . h is sanextraordinaryesorution.copyof this esorutioneednotbe firedwith heRegistrarfCompaniesnder ection92.' : l False. roxiesare o becountedor hepurposefquorumor nemeeting

called nder irectionf heCourt oramalgamationithanorneromoanv.


25/37

PP-CRf*June01 24In termsof Section 91, he resolutionas o be approved y a majority lmembersepresentinghreejourthsnvalue t he reditorsrclass fcreditorsor membersr class fmemberss hecasemaybepresentndvoting itherInperson r byproxy.

(iii) False. heof{er nder EBI SAST) egulations,997sdeem6dohave eenmadeon lhe dateof publicationf the public nnouncementn any of thenewsoaoers.(iv) True.AsperSection 913)oJ heCompaniesct ,1956,heordermade y hecourt nder ub-section2)of Section 91should e iledwith heRegistrarlCompanies.f heordersnot ledwith heRegistrar,heamalgamationrderedby heCourt hall othaveanyeffect.(v) False. ect ion93( '1)ofheCompaniesct ,1956 aysdown hatwheremeeting f creditors r membersor any class of them is called nderSection91:

(a ) with very otice allinghemeeting hichssent oa creditorra member,there hall esent lso statementettingorthhe erms f he ompromiseorarrangementnd xplainingtseffectsnd nparticular,tatingnymaterialinterestsl thedirectors, anagingirector r manager f hecompany,whethern heir apacltyssuch rasmembersrcreditorsf hecompanyor otherwise nd the eflecton those nterests, f the compromiserarrangement,f, and n solaras, t is difterentrom heeftect n the ikeinterestsf other ersons;nd(b ) in every otice allinghemeeting hichsgiven y advertisement,hereshallbe ncluded ither ucha statementsatoresaid r a not ificationttheplace twhich nd hemannernwhich reditorsrmembersntitledoattendhemeeting ayobtain opies l sucha statemenls aforesaid.

Answer (c)Reduction f share apitalwithoutsanction f he Court

The ollowingrecaseswhich mounto reductionf share apital utwhere oconfirmationy heCourts necessary:(a\ Surrender f shares "Surrenderf shares"means he surrenderl shares

alreadyssuedo hecompanyy he egisteredolder fshares.Where haresaresurrenderedo hecompany, hether ywayof settlementl a dispute rforanyother eason,t willhave hesame ffect s a transfern avour f hecompany ndamounloa reduclionf capital.(b) Forleiturefshares-A company ay fauthorisedy t sarticles,orfeit haresfornon-paymentfcalls nd hesamewillnot equireonfrmationl heCourt,when t sre-issued.(c \ Diminutionf capital Where hecompany ancels hareswhichhavenotbeenaken r agreedo be aken yanypersonlsection 4(1)(3)].(d ) Redemptionf redeemablereferencehares.


26/37

25(e) purchaseof shares fa,",.nnjr"n",n".^ PP-cRhJune 01(f) Buy-backf ,.o*nnu,.THo"j,?jff;"T;"r'ndere'ion 02.

Question(a) Whats thedifferenceetweencompromise,andarrangement,?

(5marks)@) l:1,,?:l ^!:,:fty the pr:c:d:J:e to.r makins appticationo coutt underection39t fordirectionso hotdmeetingsorsiareiliiJisrcreaitors. (Smarks)(c) What actorswillyouconsiderlorvaluation f sharesnmerger/amalgamation?(5naks)Answer2(a)Ditference etweenCompromise nctArrangement^^_tllTul,in gl le expressionrrangement,asiven nder ection90(b)f heompaniesct,1956ncludcconsoridationrhil ;i;,;,;-;.1:il:3::ffffifffiffl,,':XiL$.T[i:iJ":ioth.compromise'presu'ooses.lheexistenceL" Jiprt""*ni"h it seeks o setre.I:I:l]l!: ,1" is impriednthe arransem"nt,"rliJri'i., wrqer eaninghan,:::il:il::^,il:[::TT:]J],1ffil"ff1,T::;,lihn"";"",*,:;,flTTtrompany yanotherncrudinonterferenceithprefere;tialino other peciarightsttachedoshares an orm irt of unurrung"r"ii pi"p"."i iri,nmembers.Answer2(b)

Applicationo HighCourtseeking irectiono holdmeetingsRule Zof heComoanes Court)_Rules,1959ays own har napplicationndereclion 91(1)ofheCompaniesct.1O^S_o^t3r.ii "rJ!, #xing'd,re"tion o,"onveningeelrng(s)fcreditorsnd/ormembersrany lass f hem lialt eOywayofJudge,siJil:]f.:!i,'""J':l,iillHili:iJl"l,ffil"J,"".,"flT#tT#ff""ffiJ#|ff:;!f ,""1ilK:]:..1""rn),r"",gsg.n"urlio"",ii.".,pp"n", heppricarjonAnswer2(c)Determininghevalue ta businesssacomplicatednd ntrilaous,nesseq,.iresre lterminarionf tsuturea,n,nn"o,"nilji!"l3il,.",ii,ir?;rlT:',L',Jff::Tffffi:fi ",*l:;":ru;*ffilTl:,,:1;"J;1i;s,,."",;l::":". l!?::[: ,nder ny omputsionobuy rselr,no itn-p'artiesrave nowredse

Ari. i6 gs116",r"nsaction rice equjreshata valuebe placedon the company orl-":1. l" ?r":*: ofarrivingt his atue"r,orrJn"iro" ie*t"a,reo,"ompr"h"n.iuenayss ,.r'hrchakes ntoaccount range f tactors.JrOl"g ih" past,present. nd


27/37

PP-CBl,June2011 26mosr mportan , the utureearnings ndprospects f thecompany, n analysis f i tsmixof physical nd ntangibleassets, nd hegeneral conomic nd ndustryonditions.

Theothersalientactors ncruoe:(1) The stock exchangeprice of the shares of the two compantesbefore hecommencementf negotiationsr theannouncementf the bid.(2 ) Dividends ai don theshares.(3) Relative rowthprospects f the wo companies.(4) Incaseof equity hares,he elative earing f theshares f he wocompanies.

{ 'gear ing 'meansat io f the amount f rssued r eferencehare api tar ndoeoenturetc | jk o heamount f ssued rdlnary hare api ta l . )(5 ) Netassets f he wocompanies.(6) Voting trengthn he merged amargamated)nterprise r he sharehordersfthe wo companes.(7) Pasthistoryof the pricesof sharesol the two companies.l\4ergerndamalgamationealscan akea numberof months o comptete juringwhich imevaluat ionsan luctuateubstant ia l ly .enceprovis ions ustbe made oprotect gainst uch swings.

Question3(a) Sharadwho s a promoterof GrowGood Ltd.holds20% ot paid-up share apitalot the company. The sharesot the company are listedon National StockExchangeLtd.,Mumbai. Sharadwould like o pledge his shares or obtainingIoan. State the requirements or disctosureof pledged sharesunder the SEBI(SubstantialAcquisitionof Sharesand Takeovers)lAmendment)Regulations,2009. @ marks)(b) Explain heprovisions elating o 'escrowaccount'underthe sEBl (substantialAcquisitionof Sharesand Takeovers)Regulations,1gg7. (7 marks)

Answer3(a)Sharadhas o complywjth he ollowing equirementsDisclosureof pledgedshares BegutationgA)(1) A promoter r everyperson orming artof hepromoter roupof anycompanyrs equired o disclose etails f sharesof thatcompanypledged y h m, if any,to thatcompany,within7 workingdays rom he dateoi creatjonof pledgeonsharesof thatcompanyheldby him.

A promoter r everyperson orming artol the.promoterroupof any cotnpanyshall,within7 workingdays rom he dateof invocation f pledgeon sharesotthatcompanypledged yhim, nform hedetails f nvocation f suchptedgeothatcompany.


28/37

27Complianceequirementsy Growgood td. PP-CBl-June 011(2 ) Thecompanyhalldisclosehe nformationeceiveds above j.e. romMr.harad)caltthe tock,exchanges,"" *f,ri"f,rf".n#s ol companyre jsted,ithn7workingays f he ec6ipth"r"";, , l;;g;iy quaner nc.tingarch,une,SeptemberndDecemberfanyveai' - '" *(a ) aggregateumber fpledgedhares fapromoterrevery ersonorminEar lof promoterroupaken ogether iihsha;;;that uartery u-cnio.ot",if","";;;r;ff. ,il:""illi":fl3:l*T]:?(b ) aggregatef otal ledgedhares f hepromoterrevery ersonormingpanor promoter roup longwithheshares tready ledged uringhaiuarter y suchpromoterr persons xceeds nepercent.of totalshareholdingrvotingights f hecornp.ny,f,,in"uer s ower.,,Answer (b )Escrow ccount

Regulationg requiresheacquirero openan escrow ccount s a securityorertormanceof hisobrigationsn erms f hepubtic tter.ne amount r,be efundedr_usedor imeryur frmentf heobrigationsnd orfeit"Jr irJi " no t ornpreted.h s:i#:[n"i*"*nt againsr ivotousakeoverffers"n i .""ri", interestf hepublicThevalue f escrow mounthal l e25%,uptoFs.10Orores nd1O% boves100 rores' f heconsiderationayabreno"iil" pr"nro"iftr.ncase heacquirerasmade heofrer ubjectoa minimum"u"roi "."LiiJnJ""uio nuoo". no twant ocqurre inimumf2o% hen ehasl0provioeoz oiin" "o-nio"r"tion ayabrenderheofferncash nescrow ccounl. heacqrir".nu. ti" oiiion'or eeping ifferentialricing nd fhesoopts, eshardepositn heescrow ""olni "rorn, "urcurateditheferenceohighestrice ffered.n heevent fupwurOr"ui"ion,m" oifer,heacquirers upposedoenhanceheescrow alue pto OZotconsiOJratr:onayablepon uch

Theacquirer an exerciseheoption f Ienderingankguaranteer approvedecurtiesnescrow ccountnstead f.cash. ankgr"";duL. to be executedy:quirern avour fmerchantanker ndhas obevaiid tt"u.t oi" p"noo ommencing:' : thedateofpubric nnouncementntir 0daysafter rosuret neoffer. imirarry,::'ovedsecurrtiesithapproprlate argins"16 o o" o"oorn"owith he merchant:=-


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PP-CRl-June01 2gQuestion(a) Explainundinghrough waps r stocko stockmerger.

Drafta suitableBoardresolutionwith respect o takeover or lhe ollowino(i) otferby offerorcompany:and( ) authorisation o invest n the sharesof investee ompany.(4 markseach)(c) Sanctiono theschemeof amalgamationanbe refusedy thecourlon theground hat he ransfereeompany oesnothavesufficieni utnorisedniicapital n theappointed ate. Doyouagree?Give reasons. e marks)Answer4(a)FundinghroughSwaps r Stock o StockMergersIn stockswapmergers, r stockjor-stockmergers,he holders f the targetcompany'stbck eceivehrr:_.-:l the acqutrjng"oi,p"ny;s ro"t . Themajority fergersuringhepast ewyears ave een toci-for-siocIeats. merger rbitragespeciallstil l el l heacqulringompany,stock hort, nO itipurcnasetong osition: .:1: llS"l *Tpany, usinghe-sameatio s ha tof heproposedransacrion.tf he!rchasingrrm sofrering harf hareof tsstockoreverynale ot ne arget"omba;yllejr.themgr.gerrbitrageuri, set harf smany haies rinJ urcnasingrmasheorshebuysof he argel ompan!.

As withaf imergers,tock wapmergers ay nvorvevent,sk. nadditiono hel:T'al

event j:l(s, tock wapmergersnvotveisks ssociatedwithuctuationsn hestockprices f he wocompanies.The ermsof hedeal nvolve,anxchange fshares ndarepredictedn hepricesof the wocompanies'stockr he imeof he"";;;;;;il;rastic changesn heshares rices f oneor bothof thecompanies;; ";;;; il"" ""rire dear o be re-evaluated.erger rbjtrageurseriveeturnsrom tock wapmergers henhe preador potentialeturnustifiesheperceivediskof hedeal,s lin;.Answer (b)(i)Offerby OfferorCompany_ BESOLVEDHATan offerbe made, o the persons hoare hememberso f . . . . . . . . . . . . . . .t d . son . . . . . . . . . . . . . . ,o r cqu i s i t i ont . . _ . . . . . - . " qu tysha reso fBs .J0 l-each rep resen t i n9a . . . . . . . . . . . . . 7 .o t the to ta ti ssuedap i tu ri i r , " 1 . . . . . . . . . . . . . . . . . . . . . L rd .RESOLVEDURTHER HATabove aidoflershalt emain penp r i ce fBs . . . . . . . . . .ach .

(b) (5 marks)

RESOLVEDURTHERHAT hares eacceptedvenfsuch haresnaggregateare ess han he imitmentionedbou" no ncase.i'ai"r oiiJL """""0 the imit,hecompany hallhavean optiono accept r rejecthesame n consultationith heconcerneduthoritjesndofferwillbeacceptedccordingo fre rOernwhichhey rereceivednd ul l hareholdingf hememberscceptingie otter eacquiredubjectoabovementionedimit."


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29Answer (bXii)Authorisationo invesl n theshares f nvestee ompany

(t) A listed company.(l) An unlisted company.(iii) A private timitedcompany.

Board/eetingResolutjonnder ection Z2A f heCompaniesct ,1956.Resolvedhatpursuantosection 7.2A ndother pplicablerovtstonsf any,ofheCompaniesu, 1956 ndauthorizationi""";y lh"";";iers or necompany theirmeetjngetd n ... . . . . . . . . . . . .nantmous-con";;r ; , ; ; t ;" . "r Direoorseandsnerebylveno nvest pto .. . . . . qui tyharer" i VL. ei i t" . ara pr ice fRs... . . .Answer (c)

No,Sanctionoscheme famalga.mationannot e efusedn hegroundhat heransfereeompanyoesnothave-rff cient uil;;r;; ";;;; rneappointedare.f heschemessanctioned,he ranst"r"""ompanyu-ri;;;;;il;;,"r""." rrsauthorised|X?!U;.t'" errecto he chemeRej "i,",iiiJ,i""Eui la. r,gaul 3comp.Question5

(a) A companyhas passeda special resolutionor,reductionof capital,andeffectedhesame ndapp,ed eforeh.eRegistrarfcoiiiiiiiiaocl for issuanceferlificateconfi m ng the reduction.TheROC issued eftificate onfirming he eduction.Subsequeny, t was ound

(i) the companyhad no authorityunder its afticles o reduce apital;and(ii) thespecialresolutionwas nvalidone.State withbrief reasonssep.a.ratelyn both he above circumstances,whetherhe reductionof capitalwouldbe illowea. - ---' " "" ""(b) lt is a well known fact that to maximise the shareholders *r", ::#:::,avins surptus funds often in-ducedo o;;; ;;i;i";;;';;; shares. what areommonreasonswhichusua y induc"s a corpa,rylJ )",sonrc ouy_back?

(c) A tisted ompany haddrafteda speciar esorution o be passedhro:;::::::balot o buy_backs%of,its iia up "qiity iniir""{ii,. As a Companyecretary,ouarenr,,*l .,:.1:l!:;;;;;;;;"";:,:;"nt to he proposedesolution.Whatactorswilt ouconstderoprepare heexplanarcrytatement?d) A companywhether istedr notsrequiredomakea declarationf':;!::j1l!-l:" ,,o?ubrjt o heappropriateutnorniesiii"iin,ns abuy-backrnares. nviewof thestatem.entouar" r"qrir"a 6 irri"r';here thedecrarationtsotvencys to be submittedn caseol _

PP-CRt-June 011

(1 mark each)


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PP-CRl*June01 gOAnswer (a)Conclusivenessf certificateor reduction , capital

WhereheRegistrarad ssued iscertjficateonrirminghe eduction,hesamewasheld o be conclusivelthought wasdiscoveredaternat hecompany adnoauthorityndertsarticreso reduce apitar[8e watxar i;iiti ttd., 1903) 8 LT792(ch D) l simirarry,na casewherehespeciaresorurionoi reouction asan nvaridone, ut hecompanyadgonehrough ithhe eduction,hl reoucrronasno taflowedto be upset Ladies,s ressAssn. . putbrook,lfSOOI Oe iO;.AnswerS(b)Good.corporateovernancealls ormaximizingheshareholderalue.Whenacompany assurplusunds orwhicht doesno thavegoodavenuesordep,oymentassuringnaverageeturn ncapital mployedndearningsershare,hecompany,sf nancialtructureequiresalancrng.The easonsor buy-back aybeoneor moreof he ollowinq:(i ) to mprovearningsershare;(ii) to mproveeturn ncapitar,eturn nne tworth nd o enhancehe ong_termshareholderalue;(iii) toprovidenadditionarxit outeosharehordershen hares reunder aruedorare hinlyraded;(iv) toenhanceonsolidationf staken hecompany;(v) to prevent nwelcomeakeoverids;(vi) to return urplusash oshareholders;(vii) to achieve ptjmumapital tructure;(viii) tosupport hare rice uring eriods tsluggish arket onditions:(ix) to serviceheequitymoreefficienfly.

Thedecisiono buy-backsalso nfluencedy various theractorselatingo hecompany,uchas growth pportunities,apital tructure,ourcing f funds,os t olcapital ndoptimurnllocationf unds enerated.Answer5(c)

Whereas nlistedompanieshould btain hareholders,pprovalypassinghespecialesolutionnlyat a dulyconvenedeneralmeeting,isted ompaniesh-ouldobtain uchapprovalypostal allot,Thenotice ontaininghe special esolution roposedo be passed hould eaccompaniedyanexplanatorytatementtating:(a ) al lmaterialacts, ullyandcompletelyisctosed:(b ) thenecessityorbuy-back;


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(c) rhecrass rsecurityntendedor;epurchasedunderheo.|y_#,]*"r0,,

(d ) theamountobe nvestednder uy_back;nd(e ) the ime imitorcomptetjonfbuy_back[section 7A(3)].Answer (d )t' Itr""ff ff l ti:tJ,;[::l':ed.securities,eroreakrnsbuv-back,hesolvencyn neprescrioetJf,egrstrarofcompaniesnd EB-i," o"'"r"Lii"""r(ii) In he caseof unljsted ornesi"tiuiorJffiil:";:?;ffi'Jrlr*'l1i$,:::orvencvhasobeiled ith(iii) In he ase fprivate,rl:l^g^"lp?"|es,theDectararionrSotvencys obei ledwithRegistrar f Companres eforebuy,back , shares.

PART B(AnswerANy TWO questionsfrom thispatt.)Question6

Answer (a )lmmunity romCertain itigations Section 2

' 'l:il{:!';'#;::,:':t;Zli:ii-l ,i:k !?^p"nv'isheurposerhesickrneEgatprovision,ot rn" eilr.n'o''tions)Acl' 1985'Discuss ith referenceo'' :H::i ':i;";fl";''i",,1:::r"*veryribunatsnd",r,",,,r","lJ"ljiJ)1,(8marks)"",-l'?:,!lT;?:T#iff::ffi.,,^o:.?:orscA sasuperiorrorectjons toperatesrnemorandum-nd.,"i"'""i .,ii,lill,i:iff;:ffi [.",",i,l;??"l+;[:l*;fiavrngifectnderhe aid ctororn"r."*.rn" Jooulilr#ii'J,::fl H[1":"ff#i]Iil::i-T'l'"d";.;;,;il;;;;*ff?li:HH,'ffiJoreparatronrcon.;6"r"11enrillly.scheme. relerredo underSeitio" tz il ,"j",-an ppearnoe,ect,on! ,;i"1iT,:ffi.r::l:J:;;il1"iff":,"nLton;;ff,l_ __Wherehemanagement f he s ck industnal ompany s tak-'s uanceofany scheme anctl-3or nendustriarompany"f ,i:1:i9tl *t'"" 6,"tip,"i"3ffi:H;:Tffiil;o.ooe.tsor '' " no*iij joil^t^ol:*".rt'or1,istressr ne iteaiainst ;;;iil;il:;::',njrr1[:*#rtr#j',r:T:fij[,",'Tff::H:"1';;;:rrui:*:lhe nousr.arcom;;;; .h;j;;J"gY"ranteein espectfanv oans radvanceran'iedoBrFRras n" ase ave,iilXil:]|"::iX1#f[j'dh"',"""0titnneonsenilFunher t sha notbe ,"*,"]l:r-,f: .nlreholders f suchcompany r anyotherersonto nomjnate r appoint ny persono o" a onectoi"oii, " "orpuny "no no


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PP-CRl-June01

Answer (a)

32resolutjonassed t anymeeting_ofheshareholdersl such ompanyhall egivenect o unless pprovedyBIFF.Answer (b )Composition f Tribunal

TheBecoveryf DebtDue o Banks ndFjnancialnstitutionsct ,1993 rovidesha taTribunalhall onsist f one]oersonnly,obecalledhepresidingOf fcer,obeppointed,v notifcation, v h.eenrrarc";;r;;;; T;''c"entrar overnment ayrso uthorisehepresidinootficeror one riounaitooisc-tra-r"getso he unctionsfhe Presidingfficerof anJtnerriounat. "r , l; ffi;,rj, *no n" , been, r isualifiedo be,a Djstrjctudoemaybeappointeds hepresiJingOfficer, hoshall,old fficeora termof ivevJars om neoateonwni"r.r" "iilr. hi soffice runtir ettainsheageof sixty-twoiears,whicheverseartier. - - '"TheCentral overnmenthall,alsoppojntneormoreRecovery fficersnd uchtherofficer-sndemproyeess nee overnmenirlv "ni"r,iiir" Recoveryticersndother fficersndemDloveesfa-Tribunarha tdLct,uig"'in"i,.un"tionsnderheeneral superintendenceof lhe presidingOfticei. e vvr qivv I' LAppealo theAppellate ribunal_^_-9g"ll"l20 oI theActprovi.r_esharany person ggrievedy an ordermade, reemedohavebeenmade. va Tflbunal nderhrsA"t, ay prefer nappealo anppeliateribunaravinourisiiction" tn",uli"r. r.r'o'""pp;;1:#"ie o heApperareribunatfromnordermidebva Triornar*itr.,n" coi.l"#ii,i"'p"n,".. Every ppealharre ired ithin period t orty-fiveays rom neoat"on"ni"n " "opyof heorderade, rdeemedo have eenmade, y ireTribrn"f. ."""iu"i'oy himand tshall ensuch o'' andaccompaniedysuch ee "".n"v o" j*."riieo. providedthat hepperrateribunar ay ntertainnappearfterheexpiry t rre aro eriod f orty{ivedays f* is satisfiedha t herewassufficient."".; f";;"ilir;;;i witninharperiod.Question

(a) ln a .voruntary inding p,aI is teft o thecompany,he contributoriesnd thecreditorsoseftleheirafiairs withoutinterventib, fin" "iun "s f* as possible,.Can hecounpierce he process, nd what s itsvested ower oplrce theprocess, ndwhenandwheret sbeingexercised Brieflydtscusslt relevantasPecls.p marks)(b) ln consequencef winding.up fa timited ompany, personbecomes othcontributorynda creditoralmosto, tne""rre'"n6Lit.-

-Thepersonmade nappticationo he iqridno:,:l::,,!,"-?rount tooepiyaiie as .contributory,maybe set-off gainsthis receivable,amount rom tie.Lonpany.Shall the persongetsuch elief? lf not,whyandon whatgrounds - (Smarks)(c) Whats non.p.erformingasset'(NpA)ndertheSecuritisationndReconstructionof FinancialAssets ndEnforcementt Security ntieisi ect, OOZ(5marks). Invol.unlary inding p t s eft o the company,hecontributoriesnd he creditorso settle heiraffairswithout nterventionr tnb c6r.t a. i"i u"r]"o"",0,".However, he


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companiesct,1956."on,-,^- ^-,r,33 . . PP-cRl-'June2011thecourr il; ,ffi't;":1ns certainrovisronswhich rcmuhrht*;::i*lil,liiiifi:r#:?",Tifir;r;:nT:;:1""1^11"5,,1300".0,#:::il:t::l*l.*.ru"tlXl#lft TJli;l;::Hllfil orwindinspbejns"ono,"tJln-#""'ffi#;!T?,1ff3:Jl

TheCourt s vestedwith(0 To appoint n" ou,.'n"

to"o*ingpowers n voluntary indingup :riquidatorsu.tingJ::t:;Xu;1?1",i;'tu

other ersonsriquidatorhereo(ii) T^oemove he iquidator ndappointheotliciarLiquics iquidatornustitiabreauseei"gr.,"\^,"dili;jtl!,otinr o,n"l,"'"on(iii) To determinehe emunerationsf riquidatorhenheoffrciariquidatorsppointedsa riquidatorts"ct.n srsrjji]-,vr w' c, |(i") J""#;h:11];ij,llll :l :" 'srde.he rransementnterednto etweenwrthin weekso, ,,iu^olt-T 11 opeal eingmade yar(v)onan pprica,,on,,loto'""o;;r'''""i'ltg"t""'it?3t"it'iX't3i;;t*u't.oo

(a ) ro determine leLiquidatorrcontributoryorcreditor:''

ri""tr^ ibir ttlilf o'""'on arisinsn thewindlnspota company(b ) toexeircise,s res"",m;*:dJ_"i?r#:::iji:H,l{1i;$";til.,H,ttllrs*ti"" drarij(bxrserr hecompanyere elng oundpovu'r"Cori(vi) Tose taside nyattachmnt,istressrexecutjontarted gainstheestate r,"Jh"j":tiir;#r,i?-"|:,. rh"."omm"n"eir";,;il"windinsponsuchconrributoryr L" cll jl - "pplicationade y he iquidato;,r"Jit. ", .s*ti"n'ir'arii "i,ii'n t satisriedhat t is ustand en"r"l"r" o" *(vii) Toorder ublic xaminalionfanyperson onnected ithpromotionor ormation,".j-,:i3:Ti:#:1 ottceronnlcteJil-,#';tr;;;'ihe companyn esardorastohis.".o*,",0Tjil[,:i:iii,"",",?!::::'S:i:lT".j*,:,",

;:i"J:H;ilffifr"J"tX"_lq:id"t9,i,"," ,"-r.itn'"lrnronhat raudas.orp"nvor'ini!:ffifi"^?f:119resajdn he ormationrpromotionr heAnswer7(b)

rc t or rl saffairslsection519(1)]'

. A person,who s botha con.orvroends.ro ftsororherwis")"j:::11?.i?.9a creditorf heco,' .rneresanexpressgr""r"nllloj-"?ttthiseotsg-ai;;;ffrT,l'$:T[:J"",iwindinsuptn"i,,iiiii",:;;,;":k;,,;2i,1";;^;rni;iz;:i:ffi ,,"_*;ij


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PP-CRl-June 011 34Comp.Cas.1.751.heprinciple nderlyingenial f righlof setoff s hatwherea personentitledo DarticiDatena fund s alsobound o makea contribulionnaidof that und,hecannotbe allowed o participate ntilhe ha s discharged is obligation Re . PeruvianRailwayConstructionsCo. (1915\2 Cn. 4421.Answer7(c)Non-Pertorming ssets Section2(1 (o)]

SARFESIAct defines Non-Performingsset"as o meanan assetor account f aborrower,whichhas beenclassified y a bankor inancial nstitution s sub-standard,doubtful r lossasset-(a) in case such bank or financial nstitutions adminislered r regulated y anaulhority r bodyestablished,onstituted r appointed y any aw or the imebeing n orce, n accordance it h hedirections r guidelineselatingo assetsclassi{icationsssuedby suchauthority r body;(b) in any othercase, n accordancewilh the directions r guidelineselating oassetsclassificationsssuedby the ReserveBank.

Ouestion(a) What s theprocedural requirement for recognition of 'foreignproceedings' underthe UNCITRALModelLaw ?(b) Writeshon notes on the following(i) Lok Adalat

(ii) Committeeof inspection(iii) Corporate nsolvency.

(9 marks)

Answer (a )Applicationor recognition f a foreignproceedingArticle 5)

Article 5o{UNCITRAL odel aw, efnes hecoreproceduralequirementsoranapplicationya foreignepresentativeor recognition.n ncorporatingheprovisionntonationalaw, t s desirableot o encumberheprocess ithadditionalequirementsbeyondhese equirements.oreignepresentaliveay pplyo he ourtor ecognitionol the oreign roceedingn which he oreignepresentativeasbeenappointed.napplicationor ecognitionhall eaccompaniedy:

(a) Acertifiedopyo{ hedecisionommencinghe oreign roceedingndappoinlingthe oreignepresentative;r(b ) A certilicaterom he foreign ourtaffirminghe existence f the foreignproceedingndof heappointmentf he oreignepresentative;r(c) In heabsence f evidenceeferredc nsubparagraphsa)and b) 'anyotherevidencecceDtableo hecourt f heexistencet he oreign roceedingndof heappointmentl he oreignepresentative.Anapplicationor ecognitionhall lsobeaccompaniedya statementdentifying

allforeignroceedingsn espectf hedebtorthatre nowno he oreignepresentative.

(2markseach)


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,lI"#ffi; i,:'Jfff ffi;:n"'ru::tsupp,iedn upr"li;i",r*j,lj,".Jffin"::!:"1"[j:]fl?;:lfffl"T";H?,,T:J:Tj;[;:ffff!::;:ili:,f :'#rui':g,,.'l$"",',nl: l -" ' ""'i orecstoni:"j"!fi""T,'#rill:ili1#:ff.,f*ffilflitil*i#!,'flfu;11i,'[]J,l#"l:;#:?;;#:Trul-li*fi,,nrflldAnswer 8(b)(i)

Lok AdalalTheconcept f LokAdalii*:i.{#;{firL**"ijflr]*fi,.:ijltii"":1"*ig?il1#,:rilx?'"ffi;ffilil#1l#T#d:l,;';{,:"H;ffit#F:l:ri[{d51*iii,"*"''ffifffi 1,:;3iilI"JU:"?fi;;":?1i$:#,T..",:,:1"#t

AnswerB(bXii)Commifteeof Inspection

il:,""".d:i"T:y:[fu{l[i1*up.hered'orsay,

; fi ,?," ",.#i*r*i*;t*,;lrt"*'r":iffii,!iH"H:rffr='***tl*tl,+,-*h*'""#f*:if,iy;*x***s+=t*-I'i,:rruf;fit#",l'.ffiAnswer (bXiii)Corporatensolvencyiltrr:H,,i'i4.{#l"kdiii,,[":*i;Hffi,#[if ff"#fli


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PP-CRl-June 011 36personca n become nsolvent, company an alsobecome.insolvent company slaid to be insolventwhen ts iabilities xceed ts assetswhich esults n its nabilityopa y otl the debts.ln all casesof insolvency f a company, he question s not whether he company

"un p"V ii ,tt O"btspresenily ue or payable n futureandcontinue o function'bu t

whelher t is able o meet ts currenldemandsand whether ts existingand probableassetswouldsuffice o meet uturedemandsWhena companybecomesnsolventt s"itn"t *ounOup or revived.Whena company s wound

up' its assetsare realized ndliabilities re paido{J rom he realisationn the mannerprovided n he Act'

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