Shardul S Shroff is the executive chairman at the firm and heads the insolvency and bankruptcy practice. He has over 40 years of experience in general corporate, mergers and acquisitions, insolvency and bankruptcy, securities law, disinvestment and capital markets. Widely regarded as a pioneer in the field of corporate law and corporate governance, he has contributed to drafting several important economic legislations including the Insolvency and Bankruptcy Code 2016, as well as company law reforms in India.
What do you enjoy most about working in M&A?
There are two types of M&A processes, which the firm handles. Typically, the NCLT-approved schemes require the approval of the NCLT after following proper procedure prescribed under the Act and the Regulations made thereunder. In a case of non-NCLT amalgamation the process is mainly contractual and documented and does not require court / NCLT approval. There are several nuances involved as this would involve a transfer of the undertakings by a slump sale or otherwise into the transferee company on a going concern basis for issue of share consideration to the transferee company. There could be other bases of consideration being paid to the transferor company. This requires a shareholders’ resolution approved by the special majority of shareholders. There would be a need to create a shareholders’ agreement for reflecting the mode and manner in which the amalgamated enterprise would continue its business. The approval of the CCI is required in any case, if the transaction exceeds the threshold prescribed.
In the case of NCLT-approved schemes, as a method of amalgamation, the amalgamating companies are required to reduce their commercial agreements to writing and optionally enter into a merger cooperation agreement. Thereafter, a scheme of arrangement or amalgamation would be drafted for the approval of the board. Simultaneously, a valuation would be taken for determining the exchange ratio between the two merging companies.
I enjoy the drafting of comprehensive schemes of arrangement as it tests my logic and capability of sequencing every event that has to take place under the scheme of arrangement. It is critical that any scheme of arrangement, which is drafted is understood jurisprudentially. A scheme has to pass the test of strict scrutiny by the regulators and the joy is in drafting a scheme which is not heavily commented upon by any regulator.
What do clients look for in an effective M&A lawyer?
Clients look for substantial experience and expertise, an eye for detail in drafting, knowledge of regulatory principles and the FDI laws applicable, the tax and valuation consequences and justification behind the scheme and the clarity in the disclosures to the stock exchanges, in the event a listed company is involved and clear management of insider trading issues.
In your opinion, what are the key trends currently taking place in India’s M&A market?
The M&A market is abuzz with distressed M&A, but even otherwise financial and strategic investors are looming large to snap up inherently good companies if they are temporarily in distress or if they are collecting funds to make acquisitions or to enhance their financial strength to defend takeovers, or to make good investments in other companies as potential takeover targets.
You note that schemes of arrangement have been very active. What are the main complexities of this type of M&A?
The current complaint against schemes requiring NCLT approval is that the NCLT calendar or roster is overloaded by IBC matters. In a court-approved scheme, by a vesting order all consents, approvals, permissions, etc. are vested and transferred to the transferee company and this is a major advantage of court schemes. Strategic aspects of seeking consent from all categories of stakeholders in an NCLT scheme is most challenging. The fairness of the exchange ratio is the second ticklish issue for stakeholders. Also, if there are related parties involved, then the ability to secure the consent of the majority of the minority shareholders is difficult, if the schemes do not stand on their own merit. In a non-NCLT amalgamation, the statutory approvals have to be re-applied for and re-obtained. This becomes a disadvantage especially when the transfer of the business undertaking by the transferor is on a going concern basis.
What are the main causes behind the increase in distressed asset acquisitions?
The continuous drop in demand in the manufacturing industry, and the hidden recession and inflation have hurt industry. The appropriate remedy still eludes the government. Until customer confidence returns to normal there will be industrial sickness and stress. The viability of each company which is impacted should be tested in this interim period, if revival and reconstruction is to be efficiently handled.
How do you expect the ramifications of covid-19 to impact the M&A market?
The coronavirus pandemic has already affected M&A markets globally. Since the entrepreneur class has been impacted by the disease, its courage has taken a beating. For M&A to happen, the sight of growth and market advantage must be visible to opportunity seekers. The current circumstances of covid-19 and the moratorium on filing new applications is a temporary halt on resolution processes, but after 23 March 2021 the floodgate of filings will increase dramatically and India as a country is not prepared for such an influx of new cases.
What makes Shardul Amarchand Mangaldas & Co stand out from its competitors?
We have handled over 100 or more complex schemes throughout India. I am participating in the Company Law Committee and have deep insight into schemes. The firm has made several innovations in NCLT schemes. We have an impeccable record in approval of court schemes.
What advice would you give to younger lawyers hoping to one day be in your position?
My advice to younger people is to work hard with determination and dedication. There are no shortcuts. The law is a jealous mistress and demands several skills. It takes about 99 per cent perspiration and 1 percent inspiration to succeed in law.