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NBFC Takeover

NBFC Takeover is easier in comparison to NBFC Registration. The whole process can be completed within a period of 60 days.

  • Due Diligence of Target Company
  • Company Valuation
  • Filing of an application for Change in Management
  • Business Plan
  • Risk Assessment Model

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What is NBFC Takeover

NBFC refers to the nonbanking financial company which is engaged in the business of financial activity, as defined under the RBI Act. The financial activity refers to activities pertaining to the loans and advances and is also engaged in the acquisition of shares/stocks/bonds/debentures/securities which are issued by Government or local authority or other marketable securities say leasing, hire-purchase, insurance business, chit business. In simple words, it refers to the companies engaged in banking services like accepting deposits, giving cash advances, intermediation, leasing, hire purchase and much more.

Now, one can start its business in NBFC either by way of incorporating an NBFC or the other way is by the NBFC takeover of an already established NBFC. In this article, we shall deal with the NBFC takeover procedure, pre-requisites, and after incorporation of compliances.

Before we proceed you must know what is meant by the term NBFC Takeover?

The NBFC takeover is one of the popular forms of the business strategy. In NBFC takeover the management of the target company is captured, it is taken over either directly or indirectly, with an intention to acquire or gain the control over the board of directors of the target company.

Types of the NBFC Takeover

There are two types of the NBFC takeover. One is “friendly takeover” and other is “hostile takeover”. In case the NBFC takeover is a friendly takeover, it is executed by the acquirer through negotiations and discussions followed by acquiring the shares. In this, the acquirer voluntarily approaches the promoters/ management of the target company for negotiating and acquiring the shares. In a Friendly takeover, both parties are at the win-win position, and is done on a mutual advantage basis of the acquirer and acquired companies.

While in the case of the “hostile takeover” as the name suggests, the scenario is completely different rather opposite. A direct offer is made by the acquirer bypassing the management, to the shareholders of the target company, without taking the prior consent of the existing promoters/ management.

The procedure of NBFC Takeover

NBFC Takeover procedure in brief

  • Do the due diligence of the target company. (optional)
  • Choose the manner of a NBFC takeover; it can be done either by way of a takeover of management or takeover of shareholders.
  • Publication of such NBFC takeover is to be done is required to be done and shall wait for 30days after approval of RBI.
  • Thereafter an application is required to be made to the RBI along with the required documents.
  • Again make the publication of it and resolve the queries if any. Note it should be made before 30days of entering into an agreement to purchase share/transfer of shares/ transfer of management or such interest for the purpose of the NBFC takeover.

Due Diligence of the NBFC Takeover Company

In case you choose to do the due-diligence of the target, which genuinely you must do, it will give you the insights of the target company and unwind many aspects which are possible you may not be known before doing the due diligence.

What is Due Diligence? How can you do it?

In layman language the due diligence can be termed as the inspection of the truths/facts /the documents including the background verification and such other report generation which shall form the basis of checks for the authenticity of documents produced and facts gathered about the organization and such related transaction of the entity/ target company which is to be acquired/purchased.

Checks for Due Diligence

  • Check all the documents to be submitted to the RBI previously and to such other authorities
  • Check all the previous records, let say the last 3 year financial statements, cases pending against the company if any, indebtedness if any and such other details which could impact the decision of NBFC takeover.
  • Also inspect all such important documents like incorporation certificate, VAT, GST, all other such registrations availed at the time of incorporation or during the ongoing tenure of the company.
  • You can proceed and execute a formal memorandum of understanding agreement and it must be signed with a certain token of money.
  • Get the details of all the KYC about the directors and promoters left, added and at present working in the company.

Procedure for NBFC Takeover

  • RBI Approval requirement

Take the prior approval of the RBI. For NBFC takeover the RBI is the governing authority, hence its approval is required to be obtained in the following three cases:

  1. Whenever the NBFC Takeover procedure is to be initiated.
  2. In situations wherein, it has led to the change in the management in such a way that it is leading to a change of 30% of the number of directors.

Exception: - In case that 30% change pertains to the 30% of the Independent directors or due to the rotation of directors then in such cases, the prior approval of RBI is not required.

  1. Whenever the Change in the Shareholding pattern is done in such a manner that it has caused the transfer of 26% of the Paid-up capital of the company to other.

Exception: - The Buyback of the shares or reduction in capital by the approval of a competent court is out of the purview of and do not require prior approval of RBI.

  • Publication of Public Notice

  • Publish the Public Notice in two regional languages of which one should be English and other in vernacular language should be published for 30 days after approval of RBI, which means the acquirer need to wait for 30 days after approval of RBI, wait for objections, resolve them if any, before taking any further steps.

  • Enter into Formal Mgreement

  • Both the concerned parties can thereafter enter into formal agreement to purchase share/transfer of shares/ transfer of management or such interest for NBFC Takeover.

  • Publication of Public notice: (Second Public Notice)

Publish the Public Notice in two regional languages of which one should be English and other in vernacular language should be published before 30days of entering into an agreement to purchase share/transfer of shares/ transfer of management or such interest for takeover.

Very obvious things that must be indicated in the public notice are following:

  1. Intention to sell or transfer ownership/ control;
  2. All the relevant particulars of the transferee; and
  3. Reasons for such act of the sale or transfer of ownership/ control
  • Procedure for NBFC takeover in cases where prior approval is required as mentioned above

  • Application:

Make an application to the Regional Office of the Department of Non-Banking Supervision in whose jurisdiction the Registered Office of the NBFC is located. The application must be printed on the on the letterhead of the company and shall make a request before the authority for the approval of NBFC Takeover. The application shall be accompanied with certain documents in the form of attachments to the application.

  • Attachments of the applications:
  • Proposed directors/ shareholders details,
  • Sources of funds that will be used by the shareholders to acquire the shares in the NBFC (the target company)
  • Non association/association declaration:

The complete detail about the association of the proposed directors/ shareholders of being associated with any unincorporated body/ incorporated body which is engaged in accepting the deposits or details of any such application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank, and the reason of such rejection

  • Declaration:

The proposed directors/ shareholders are required to give the declaration stating that there is no criminal case, including for offense under section 138 of the Negotiable Instruments Act, against them.

  • Bankers’ Report:

Bankers report is also required about the proposed directors/ shareholders

  • Financial Statements/Annual Report:

The financial statements for the last three years should also be attached.

Scrutiny and issuance of the NBFC Takeover Certificate

The Regional Office of the Department of Non-Banking Supervision shall scrutinize the application and if any query found, the notice shall be served and details shall be stipulated into the notice, otherwise, the NBFC takeover will be approved.

It takes around 3-4 month by the authorities after application being filed with them. However, in particle grounds, the approval from the RBI is very stringent and tough job to be accomplished. You can seek the help of agencies dealing in the RBI NBFC takeover, and having an expert hand on it.

We the team of Corpbiz can help you and can provide the end to end solution for the same. Kindly click here to contact us

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