What does the amendment change in the SAST (Amendment) Regulations, 2020?
“Majority wins” is a widely accepted rule, be it among friends looking to choose a game to play on a weekend or when deciding a destination for an outing. Moreover, the rule also applies in the corporate world, when decisions related to a company are based on what the majority of shareholders agree too.
These decisions include mergers and acquisitions (M&A), a popular form of restructuring a company. Only, M&A has a significant impact on the affairs and management of the company to be merged (target company). That’s when, “Majority wins” might suppress the rights/interests of the minority shareholders and also result in mismanagement or poor corporate governance of the entity.
But with the growing popularity of M&A as a form of restructuring companies in India, something had to be done to prevent hostile takeover resulting in the consequences for the company and its investors. That is why SEBI introduced Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations, 2011) in Sep 2011. This Regulation governs the substantial acquisition procedure so as to prevent hostile takeover of voting rights in a company and, in turn, ensure good corporate governance in the entity.
However, such regulations restrict/modulate the flow of capital in a company, which may not be feasible now, when companies are cash-strapped due to the pandemic and are looking for ways to survive and grow. Well, SEBI has amended the SAST Regulations, 2011 for the current year to support such companies. So, what gives? Let’s learn that, important terms, and critical interpretations of the SAST Regulations, 2011 here.
Note that, this article only explains the essence of the SAST Regulations 2011 in a simple and easy to understand manner. You can read the entire coverage of the SAST Regulations, 2011 here.
Introduction to substantial acquisition and takeover
Equity shares give ownership rights of a company. More the number of shares you hold, the higher stake you will have in the entity. Meaning, you will have a stronger say or control over the affairs and management of the business. However, minority shareholders (i.e. who do not exercise control over a company), might be at the risk of being suppressed.
Contrary to their position as one of the owners of the company, majority shareholders may decide or act in a way that may be hostile to their interests. As a minority shareholder, your right may thus be suppressed in case you want the management to be unchanged. Therefore, it is vital to ensure that the minority interest is not oppressed by the majority, to ensure which, SEBI has established several measures and regulations. SEBI Substantial Acquisition of Shares and Takeovers Regulations, 2011 (SAST Regulations 2011) is one such measure.
What is SEBI Substantial Acquisition of Shares and Takeovers Regulations, 2011?
Mergers and acquisitions (M&A) are well-known ways of restructuring a company. If the majority shareholders of a company unanimously agree to merge with another entity, it would significantly impact the company and the shareholders, which may or may not be good. As the regulator of the capital markets in the country, SEBI is, therefore, responsible to ensure that the process is fair and the interest of all the shareholders is protected. Continue to read the amendment made to SAST Regulations and how does it affect investors and help companies amid coronavirus.