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Question 1Corporate Restructuring – Concepts, Forms and Regulatory Framework

Under the Companies Act, 2013, which authority sanctions a scheme of compromise or arrangement between a company and its creditors or members before it becomes binding?

  1. The Registrar of Companies by endorsement
  2. The Regional Director of the Ministry of Corporate Affairs
  3. The National Company Law Tribunal by order Correct answer.
  4. The Competition Commission of India by clearance

Explanation

Section 230 of the Companies Act, 2013 requires an application to the National Company Law Tribunal, which may order meetings of creditors or members and thereafter sanction the scheme. The sanction order of the Tribunal is what gives the scheme binding force on the company, its members, creditors and liquidator. Other authorities may have collateral roles but cannot sanction the scheme itself.

Question 2Corporate Restructuring – Concepts, Forms and Regulatory Framework

In a scheme of corporate debt restructuring, the term 'haircut' refers to which of the following?

  1. The reduction accepted by lenders in the amount recoverable from the borrower Correct answer.
  2. The penal interest levied for delay in achieving milestones
  3. The fee charged by the monitoring institution for supervising the restructuring
  4. The margin money required to be brought in by promoters

Explanation

A haircut is the sacrifice accepted by creditors, measured as the difference between the amount due and the amount expected to be realised under the restructuring package. It is typically expressed as a percentage of the outstanding exposure. It is distinct from fees, penal interest and promoter contribution, which are separate commercial elements of the package.

Question 3Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following best describes a 'scheme of arrangement' for the purposes of Indian corporate law?

  1. A resolution passed by the board for the appointment of additional directors
  2. A proposal between a company and its members or creditors involving a reorganisation of share capital or a merger Correct answer.
  3. A private contract between two shareholders for the transfer of their shares at an agreed price
  4. An agreement with a bank for the renewal of a working capital facility

Explanation

A scheme of arrangement is a statutory compromise or arrangement under Sections 230 to 232 of the Companies Act, 2013, typically involving reconstruction, merger, demerger or capital reorganisation. It requires approval through the Tribunal-supervised process because it alters rights of members or creditors. Ordinary commercial contracts and board resolutions do not attract that statutory procedure.

Question 4Corporate Restructuring – Concepts, Forms and Regulatory Framework

The Insolvency and Bankruptcy Code, 2016 consolidated the earlier framework for corporate insolvency. Which of the following statutes was repealed by the Code in relation to corporate persons?

  1. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
  2. The Sick Industrial Companies (Special Provisions) Act, 1985 Correct answer.
  3. The Recovery of Debts Due to Banks and Financial Institutions Act, 1993
  4. The Companies Act, 1956 in its entirety

Explanation

The Code repealed the Sick Industrial Companies (Special Provisions) Act, 1985, thereby dissolving the Board for Industrial and Financial Reconstruction and abolishing the reference-based sickness regime. The other statutes continue in force, though their operation is subject to the moratorium and priority rules of the Code. The Companies Act, 1956 was largely replaced by the 2013 Act, not by the Code.

Question 5Corporate Restructuring – Concepts, Forms and Regulatory Framework

In the context of restructuring, 'corporate debt restructuring' typically involves which of the following?

  1. Buyback of shares by the company from its shareholders
  2. Payment of dividend out of accumulated profits
  3. Rescheduling of repayment, conversion of debt into equity or reduction of interest rate by lenders Correct answer.
  4. Issuance of fresh equity to the public through an initial public offering

Explanation

Corporate debt restructuring is a lender-driven exercise in which the terms of existing debt are altered to restore the borrower's viability, through rescheduling, interest reduction, conversion into equity or a combination of these. It addresses the liability side of the balance sheet. Public issues, buybacks and dividends are capital or distribution decisions and do not restructure debt.

Question 6Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following is a defining feature of a merger by absorption?

  1. A new company is incorporated to take over the undertakings of two or more existing companies
  2. The transferee company is dissolved without winding up and its shareholders receive nothing
  3. Only the assets of the transferor are transferred while the transferor continues to operate
  4. The transferor company's undertaking vests in the transferee company and the transferor ceases to exist Correct answer.

Explanation

In a merger by absorption, the transferor company's business and undertaking vest in an existing transferee company, and the transferor is dissolved without winding up. The transferee survives and its identity is unchanged. Creation of a new company to take over the transferors describes a merger by formation of a new company.

Question 7Corporate Restructuring – Concepts, Forms and Regulatory Framework

Under the Insolvency and Bankruptcy Code, 2016, a financial creditor initiates corporate insolvency resolution process by filing an application before which adjudicating authority?

  1. The National Company Law Tribunal Correct answer.
  2. The Debt Recovery Tribunal
  3. The High Court of the relevant state
  4. The Board for Industrial and Financial Reconstruction

Explanation

Section 7 of the Code allows a financial creditor to file an application for initiation of corporate insolvency resolution process before the National Company Law Tribunal, which is the adjudicating authority for corporate persons. The Debt Recovery Tribunal is the adjudicating authority for individuals and partnership firms. The Board for Industrial and Financial Reconstruction has been dissolved.

Question 8Corporate Restructuring – Concepts, Forms and Regulatory Framework

'Demerger' in Indian company law is statutorily described by which expression?

  1. The amalgamation of two wholly owned subsidiaries into the parent
  2. The cancellation of unpaid share capital of a company
  3. The transfer of one or more undertakings of a company to another company pursuant to a scheme Correct answer.
  4. The conversion of a public company into a limited liability partnership

Explanation

Section 232 read with the definition in the Companies Act, 2013 treats demerger as the transfer of one or more undertakings of a company to another company under a scheme of arrangement. The resulting company issues shares to the shareholders of the demerged company on a proportionate basis. Cancellation of capital, conversion into an LLP and amalgamation are different transactions.

Question 9Corporate Restructuring – Concepts, Forms and Regulatory Framework

A company wishes to enter into a scheme of arrangement with its secured creditors. Which procedural step is required before the Tribunal considers sanction?

  1. Publishing the scheme only in the official gazette without any creditor meeting
  2. Convening a meeting of the creditors as directed by the Tribunal and obtaining their approval by the requisite majority Correct answer.
  3. Obtaining prior written consent of every single creditor regardless of the amount involved
  4. Approval by the board of the company alone, without reference to creditors

Explanation

Section 230 requires the Tribunal to direct meetings of creditors or classes of creditors, and the scheme must be approved by a majority representing three-fourths in value of the creditors present and voting. Individual consent of every creditor is not the statutory test. Board approval is an internal prerequisite but not a substitute for the creditor meeting.

Question 10Corporate Restructuring – Concepts, Forms and Regulatory Framework

In a scheme of amalgamation, the appointed date is significant because it determines which of the following?

  1. The date of incorporation of the transferor company
  2. The date from which the transferee company accounts for the assets and liabilities of the transferor Correct answer.
  3. The date on which the Tribunal hears the petition for sanction
  4. The date by which dissenting shareholders must exit the company

Explanation

The appointed date is the effective accounting date specified in the scheme from which the transferee company records the transferor's assets, liabilities and results. It may precede the effective date, which is the date on which the certified copy of the Tribunal order is filed with the Registrar. Hearing dates and incorporation dates are independent of the appointed date.

Question 11Corporate Restructuring – Concepts, Forms and Regulatory Framework

Under the Insolvency and Bankruptcy Code, 2016, what is the outer limit for completion of the corporate insolvency resolution process, including any extension permitted?

  1. Three hundred and thirty days from the insolvency commencement date Correct answer.
  2. Two years from the date of the default
  3. One hundred and eighty days with no possibility of extension
  4. Ninety days from admission of the application

Explanation

The Code provides a base period of one hundred and eighty days from the insolvency commencement date, extendable by the adjudicating authority by up to ninety days on an application by the resolution professional. The overall outer limit is therefore three hundred and thirty days. Extensions beyond that require specific legal grounds and are exceptional.

Question 12Corporate Restructuring – Concepts, Forms and Regulatory Framework

A resolution professional is examining whether a transaction is a preferential transaction. Which condition is essential to establish a preference under the Code?

  1. The transfer was a gift made to a charitable trust
  2. The transfer was made at fair market value in the ordinary course of business
  3. The transfer was made to a creditor or guarantor for a pre-existing debt and had the effect of putting that person in a better position than in liquidation Correct answer.
  4. The transfer was made to a related party at any time after incorporation

Explanation

Section 43 treats a transfer of property or an interest to a creditor or guarantor for a pre-existing antecedent debt as preferential if it places that person in a better position than they would occupy in liquidation. Transfers in the ordinary course of business and for fair value are protected. Timing look-back periods apply depending on whether the counterparty is related or unrelated.

Question 13Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following statements correctly distinguishes a takeover from a merger?

  1. In a takeover, control of the target passes to the acquirer while the target usually retains its separate legal existence Correct answer.
  2. In a merger, no shareholder approval is ever required
  3. In a takeover, the target company is always dissolved without winding up
  4. In a merger, the acquirer always pays cash and the target survives as a subsidiary

Explanation

A takeover is an acquisition of control, typically through purchase of shares, and the target generally continues as a separate legal entity under new control. A merger involves combination of undertakings and dissolution of the transferor without winding up. Cash consideration and subsidiary status may occur in either transaction and are not defining features.

Question 14Corporate Restructuring – Concepts, Forms and Regulatory Framework

The National Company Law Tribunal sanctions a scheme of arrangement. From which date does the scheme become effective for the purpose of filing with the Registrar?

  1. The appointed date stated in the scheme
  2. The date on which a certified copy of the Tribunal order is filed with the Registrar of Companies Correct answer.
  3. The date of the Tribunal's oral pronouncement in open court
  4. The date of the members' meeting approving the scheme

Explanation

Under Section 230, the scheme becomes effective upon filing of the certified copy of the Tribunal order with the Registrar of Companies, and the order must be filed within the prescribed period. The appointed date is an accounting reference and may be earlier. Pronouncement and meeting dates are procedural steps that precede effectiveness.

Question 15Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following is the principal objective of the Insolvency and Bankruptcy Code, 2016 in relation to corporate debtors?

  1. Maximisation of value of assets and promotion of entrepreneurship through a time-bound resolution process Correct answer.
  2. Recovery of dues of secured creditors ahead of all other stakeholders in every case
  3. Liquidation of every defaulting company as the first resort
  4. Punishment of promoters for default through criminal prosecution

Explanation

The Code's stated objectives are value maximisation, promotion of entrepreneurship, availability of credit and a time-bound resolution process balancing the interests of all stakeholders. Liquidation is a last resort when resolution fails. Recovery is a consequence, not the sole objective, and secured creditors' priority is subject to the waterfall in Section 53.

Question 16Corporate Restructuring – Concepts, Forms and Regulatory Framework

In a scheme of demerger, the resulting company issues shares to the shareholders of the demerged company. What is the principal purpose of this share issuance?

  1. To satisfy the condition of minimum public shareholding
  2. To raise fresh capital for the resulting company's expansion
  3. To preserve the shareholders' economic interest in the undertaking that has been transferred Correct answer.
  4. To discharge the demerged company's liability to its creditors

Explanation

Because an undertaking leaves the demerged company, its shareholders would otherwise lose their indirect interest in that business. Issuing shares of the resulting company to them preserves that economic interest in proportion to their holding. The issuance is not a fund-raising exercise and does not discharge creditor claims.

Question 17Corporate Restructuring – Concepts, Forms and Regulatory Framework

A company proposes a scheme of arrangement involving reduction of share capital. Which additional statutory requirement applies?

  1. Approval by the Securities and Exchange Board of India in every case
  2. Registration of the scheme with the Reserve Bank of India
  3. Consent of the company's statutory auditor
  4. Compliance with the provisions governing reduction of share capital, including the Tribunal's confirmation and creditor safeguards Correct answer.

Explanation

Where a scheme involves reduction of share capital, the requirements of Section 66 of the Companies Act, 2013 must also be satisfied, including Tribunal confirmation and protection of creditors. Section 230 expressly preserves the operation of other applicable provisions. SEBI, the auditor and the Reserve Bank do not grant the core sanction for capital reduction.

Question 18Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following best explains the concept of 'reverse merger' in a restructuring context?

  1. A subsidiary is demerged into a new company owned by the parent
  2. A company merges with its creditor by converting debt into equity
  3. A smaller or unlisted entity merges into a listed or larger entity so that the former's owners obtain control of the surviving company Correct answer.
  4. A parent company absorbs its wholly owned subsidiary to simplify the group structure

Explanation

In a reverse merger, the entity that is economically acquiring control merges into the surviving company, often a listed shell, so that its shareholders emerge with control of the listed entity. This achieves a listing without an initial public offering. Absorption of a subsidiary and demerger are different restructuring forms.

Question 19Corporate Restructuring – Concepts, Forms and Regulatory Framework

The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 principally prohibits which of the following during the corporate insolvency resolution process?

  1. Continuation of the corporate debtor's ordinary business operations
  2. Filing of returns by the corporate debtor with statutory authorities
  3. Payment of salaries to the corporate debtor's employees
  4. Institution of suits and enforcement of security interests against the corporate debtor Correct answer.

Explanation

The moratorium shields the corporate debtor from fresh suits, continuation of pending suits, enforcement of security interests and recovery actions during the resolution process. It does not halt the going-concern operations of the debtor, which the resolution professional is expected to continue. Salaries and statutory filings are ordinary obligations that continue.

Question 20Corporate Restructuring – Concepts, Forms and Regulatory Framework

A scheme of amalgamation is presented for sanction. A small group of shareholders dissents and votes against it. What is the consequence if the scheme is approved by the requisite majority and sanctioned?

  1. The dissenters can continue separate proceedings to restrain the transferee company indefinitely
  2. The dissenters' shares are automatically cancelled without any consideration
  3. The dissenters are bound by the scheme but may be entitled to the exit or valuation mechanism provided in the scheme Correct answer.
  4. The scheme fails because unanimity of shareholders is required

Explanation

Once the statutory majority approves and the Tribunal sanctions the scheme, it binds all members and creditors, including dissenters. Dissenters are typically protected through a provision allowing them to exit at a valuation determined in accordance with the scheme. Unanimity is not required, and their shares cannot be cancelled without consideration.

Question 21Corporate Restructuring – Concepts, Forms and Regulatory Framework

In the context of the Insolvency and Bankruptcy Code, 2016, who is a 'resolution applicant'?

  1. The adjudicating authority that admits the application
  2. A person who submits a resolution plan to the resolution professional for resolution of the corporate debtor Correct answer.
  3. A creditor who files an application to initiate the resolution process
  4. A member of the committee of creditors representing operational creditors

Explanation

A resolution applicant is a person who submits a resolution plan under Section 30 of the Code, proposing how the corporate debtor will be resolved. The applicant must satisfy the eligibility conditions in Section 29A. A creditor who initiates the process is an applicant for initiation, not a resolution applicant, and the adjudicating authority is the Tribunal.

Question 22Corporate Restructuring – Concepts, Forms and Regulatory Framework

A listed company proposes a scheme of arrangement. Which regulatory requirement applies in addition to the Tribunal process?

  1. Approval of the scheme by the Reserve Bank of India
  2. Compliance with the SEBI circular governing schemes of arrangement by listed entities, including the no-objection process Correct answer.
  3. Filing of the scheme only with the Ministry of Corporate Affairs
  4. Prior consent of every stock exchange on which any group company is listed anywhere

Explanation

Listed entities must comply with the SEBI framework for schemes of arrangement, which includes filing the scheme with stock exchanges and obtaining a no-objection or observation letter before approaching the Tribunal. This operates alongside, not in place of, Sections 230 to 232. Reserve Bank approval is not generally required, and the Ministry does not sanction schemes.

Question 23Corporate Restructuring – Concepts, Forms and Regulatory Framework

Which of the following is the correct sequence of key stages in a scheme of arrangement under Sections 230 to 232 of the Companies Act, 2013?

  1. Sanction order, application to the Tribunal, meetings of creditors, filing with the Registrar
  2. Filing with the Registrar, sanction order, meetings of members, application to the Tribunal
  3. Application to the Tribunal, direction for meetings, approval by requisite majority, report of result, sanction order, filing with the Registrar Correct answer.
  4. Meetings of members, filing with the Registrar, sanction order, application to the Tribunal

Explanation

The process begins with an application to the Tribunal, which may direct meetings of members or creditors. If the scheme is approved by the requisite majority, the result is reported to the Tribunal, which then considers sanction. The certified copy of the sanction order is filed with the Registrar to make the scheme effective.

Question 24Corporate Restructuring – Concepts, Forms and Regulatory Framework

Under Section 53 of the Insolvency and Bankruptcy Code, 2016, which of the following ranks immediately after the costs of the insolvency resolution process and liquidation in the waterfall?

  1. Debts of secured creditors who have relinquished their security
  2. Debts owed to the Central and State Governments
  3. Workmen's dues for the period of twenty-four months preceding the liquidation commencement date Correct answer.
  4. Dues of operational creditors other than workmen

Explanation

The waterfall in Section 53 places insolvency resolution and liquidation costs first, followed by workmen's dues for the twenty-four months preceding the liquidation commencement date and secured creditors' debts where security is relinquished. Government dues and other operational creditors rank lower. This order reflects the statutory priority scheme.

Question 25Corporate Restructuring – Concepts, Forms and Regulatory Framework

A scheme proposes to transfer an undertaking of a company to another company, but the transferor holds an unexpired lease of immovable property. Which principle governs the transfer of such a lease under a sanctioned scheme?

  1. The lease is extinguished and replaced by a statutory tenancy
  2. The lease can be transferred only if the lessor is a shareholder of the transferee company
  3. The scheme can transfer the leasehold interest notwithstanding restrictions, because the Tribunal's sanction binds parties including those with notice Correct answer.
  4. The lease always lapses because assignment requires the lessor's fresh registered consent in every case

Explanation

A sanctioned scheme operates by force of the Tribunal's order and binds parties affected by it, so contractual or leasehold restrictions may be overridden to give effect to the scheme. This is subject to the scheme's terms and any specific statutory protection. Fresh consent of the lessor is not invariably required, and the lease is not automatically extinguished.

Question 26Corporate Restructuring – Concepts, Forms and Regulatory Framework

Under the Companies Act, 2013, which authority sanctions a scheme of compromise or arrangement between a company and its members or creditors after the requisite meetings have been held?

  1. The Regional Director of the Ministry of Corporate Affairs
  2. The Registrar of Companies of the state of registered office
  3. The Securities and Exchange Board of India
  4. The National Company Law Tribunal having jurisdiction Correct answer.

Explanation

Sections 230 to 232 of the Companies Act, 2013 confer the power to sanction schemes of compromise, arrangement, amalgamation and demerger on the National Company Law Tribunal. The Tribunal may order meetings of members or creditors, consider objections and then sanction the scheme, which becomes binding on all concerned once filed with the Registrar. The other bodies perform supporting or regulatory roles but do not sanction the scheme.

Question 27Corporate Restructuring – Concepts, Forms and Regulatory Framework

A company wants to restructure by transferring one of its business undertakings to a wholly owned subsidiary so that the undertaking's assets and liabilities vest in the subsidiary. Which form of corporate restructuring does this most directly describe?

  1. Voluntary winding up
  2. Reduction of share capital
  3. Buy-back of securities
  4. Demerger effected through a scheme of arrangement Correct answer.

Explanation

A demerger involves the transfer of one or more undertakings of a company to a resulting company under a scheme sanctioned by the Tribunal, with the resulting company issuing shares to the shareholders of the demerged company. Because the transfer is of an undertaking with its assets and liabilities, it falls within the demerger framework rather than capital reduction or liquidation.

Question 28Corporate Restructuring – Concepts, Forms and Regulatory Framework

A scheme of arrangement is proposed between a company and its members. The Tribunal directs that a meeting of members be convened. Which of the following is required for the scheme to be approved at that meeting?

  1. Approval by a majority of persons representing three-fourths in value of the members or class of members present and voting Correct answer.
  2. Approval by a simple majority in number of members present and voting only
  3. Approval by members holding at least three-fourths in value of the total paid-up capital, regardless of numbers voting
  4. Approval by every member of the company in writing, without any meeting being held

Explanation

Section 230(6) requires the scheme to be agreed to by a majority of persons representing three-fourths in value of the creditors, members or class of members present and voting at the meeting. Both the numerical majority and the three-fourths value threshold must be satisfied. Unanimous written consent of all members is not the statutory test.

Question 29Corporate Restructuring – Concepts, Forms and Regulatory Framework

A company is considering a takeover of another listed company by acquiring control of its board and management without a full merger of the two entities. Which statement best captures how a takeover differs from an amalgamation?

  1. In a takeover, shares are always cancelled and reissued by the acquirer, whereas in an amalgamation shareholders of the transferor receive no consideration
  2. In a takeover, the acquirer must be a government company, whereas in an amalgamation any company may be the transferee
  3. In a takeover, the acquired company continues as a separate legal entity under new control, whereas in an amalgamation the transferor company's undertaking vests in the transferee and the transferor is dissolved Correct answer.
  4. In a takeover, the target company is always dissolved without winding up, whereas in an amalgamation it survives as a subsidiary

Explanation

A takeover involves acquiring control of a company, typically through purchase of shares or a share exchange, while the target retains its separate legal personality under new management. In an amalgamation, the transferor's undertaking and liabilities vest in the transferee and the transferor company is dissolved without winding up. This distinction in legal survival is what separates the two forms.

Question 30Corporate Restructuring – Concepts, Forms and Regulatory Framework

A company has an accumulated loss and negative net worth. It proposes a scheme under which a profitable group company will merge into it, with the existing shareholders of the loss-making company retaining control and the transferor's shareholders receiving a minority stake. Which feature most clearly identifies this as a reverse merger?

  1. The financially weaker or smaller entity is the surviving transferee company, and control passes to the transferor's shareholders Correct answer.
  2. The transferor company is larger in asset value than the transferee company in every case
  3. The scheme requires approval only of the creditors and not of the members of either company
  4. The appointed date is fixed after the date of the Tribunal's sanction order

Explanation

A reverse merger is characterised by the smaller or financially distressed entity surviving as the transferee while the larger or profitable entity merges into it, with control of the combined entity shifting to the transferor's shareholders. The loss-making company's listing or shell status is often the commercial rationale. Size alone does not define a reverse merger, so the answer turns on which entity survives and who controls it.

Question 31Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Under the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs, a mandatory general offer obligation is triggered when a person acquires voting rights carrying what percentage or more of the voting rights of a listed company?

  1. 30% Correct answer.
  2. 25%
  3. 50%
  4. 10%

Explanation

The Takeovers Code sets 30% as the trigger point: a person (or concert party group) acquiring 30% or more of the voting rights, or increasing an existing holding between 30% and 50%, must make a mandatory general offer for all remaining shares. This threshold is deliberately lower than a simple control majority so that control premiums cannot be obtained without sharing the offer with all shareholders.

Question 32Mergers, Acquisitions, Takeovers and Corporate Control Transactions

A concert party group holding 32% of a Hong Kong listed issuer wishes to increase its stake to 35% by buying shares on-market. Which statement best describes the consequence under the Takeovers Code?

  1. No obligation arises because purchases on-market are exempt from the mandatory offer requirement.
  2. A mandatory general offer obligation arises because the group is increasing its holding between 30% and 50%. Correct answer.
  3. A mandatory offer is required only if the group crosses 50% of the voting rights.
  4. No obligation arises because the increase is less than 5 percentage points in a twelve-month period.

Explanation

Once a person or concert group holds between 30% and 50%, any further acquisition of voting rights triggers a mandatory general offer; there is no de minimis creeper allowance in the Hong Kong Code. The creeper concept exists in some other jurisdictions, but here the trigger is any increase above the 30% threshold.

Question 33Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Under the Takeovers Code, the offer price for a mandatory general offer must be not less than:

  1. The average closing price over the preceding thirty trading days
  2. The closing price on the day before the announcement
  3. The highest price paid by the offeror or its concert parties for the shares in the six months preceding the offer announcement Correct answer.
  4. The net asset value per share as shown in the latest audited accounts

Explanation

The Code requires the mandatory offer to be at a price not less than the highest price paid by the offeror or any concert party during the six months prior to the commencement of the offer period. This prevents an offeror from buying control at a premium and then offering a lower price to the remaining shareholders.

Question 34Mergers, Acquisitions, Takeovers and Corporate Control Transactions

In a scheme of arrangement used to effect a Hong Kong listed company takeover, which majority is required at the court-ordered shareholders' meeting for the scheme to be approved by shareholders?

  1. A simple majority of those present and voting regardless of value
  2. At least 90% in value of all shareholders on the register
  3. A two-thirds majority in number and value of those voting
  4. A majority in number representing at least 75% in value of the shareholders present and voting Correct answer.

Explanation

Section 673 of the Companies Ordinance requires a scheme to be approved by a majority in number representing at least 75% in value of the members present and voting at the meeting. The dual test of headcount and value is a defining feature of schemes, distinguishing them from contractual general offers.

Question 35Mergers, Acquisitions, Takeovers and Corporate Control Transactions

An offeror has acquired 90% of the shares of a Hong Kong listed company via a general offer and wishes to compulsorily acquire the remaining shares. Which condition must be satisfied under the SFO?

  1. The offeror must obtain the consent of the SFC and the Stock Exchange before any compulsory acquisition
  2. The offeror must wait for the remaining shareholders to voluntarily tender their shares
  3. The offeror must have held 90% for at least twelve months before the offer
  4. The offeror must have acquired at least 90% of the shares it made the offer for within four months of the offer, and the offer must have been accepted by at least 90% of the independent shareholders Correct answer.

Explanation

Section 693 of the SFO permits compulsory acquisition where the offeror has acquired 90% of the shares to which the offer related within four months, and the offer was accepted by holders of at least 90% of the independent shares. The independent shareholder test prevents the offeror's own holdings from counting towards the threshold.

Question 36Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which body administers the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs and issues rulings on whether a party has acted in concert?

  1. The Hong Kong Monetary Authority
  2. The Stock Exchange of Hong Kong Listing Committee
  3. The Companies Registry
  4. The Securities and Futures Commission through the Executive Director of the Corporate Finance Division Correct answer.

Explanation

The SFC administers the Takeovers Code through its Corporate Finance Division, and the Executive Director (Corporate Finance) issues rulings on concert party questions and Code compliance. The Listing Committee deals with listing rules rather than the Takeovers Code.

Question 37Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Under the Takeovers Code, when must an offeror's announcement of a firm intention to make an offer be published after the obligation to announce arises?

  1. At the offeror's discretion, provided the offer document follows within six months
  2. Within ten business days of the obligation arising
  3. Within thirty days of the obligation arising
  4. As soon as practicable and in any event within the period specified by the Executive, generally not later than the next business day after the obligation arises Correct answer.

Explanation

The Code requires an announcement as soon as practicable, and the Executive generally expects publication no later than the business day following the triggering event. Delay is permitted only in limited circumstances with the Executive's consent, and a firm announcement generally obliges the offeror to proceed.

Question 38Mergers, Acquisitions, Takeovers and Corporate Control Transactions

A potential offeror approaches a target board and the target agrees to provide confidential information in exchange for a standstill. Under the Takeovers Code, a standstill agreement:

  1. Is prohibited in all circumstances as an improper deal protection measure
  2. May validly prevent the target from ever soliciting a higher offer
  3. Must be approved by the SFC before it can be signed
  4. Must not restrict the offeree company from making a competing offer or from providing information to a bona fide competing offeror, and must be disclosed in the offer document Correct answer.

Explanation

The Code permits standstill arrangements but limits their scope: they cannot fetter the target's ability to solicit or entertain a higher competing offer, and their terms must be disclosed. This preserves the auction dynamic that the Code seeks to protect for shareholders.

Question 39Mergers, Acquisitions, Takeovers and Corporate Control Transactions

In assessing whether parties are acting in concert under the Takeovers Code, which factor is most relevant?

  1. Whether they are incorporated in the same jurisdiction
  2. Whether they cooperate to obtain or consolidate control of the target pursuant to an agreement or understanding, whether formal or informal Correct answer.
  3. Whether they have previously invested in the same sector
  4. Whether they share the same financial adviser

Explanation

Concert party status turns on cooperation to obtain or consolidate control under an agreement or understanding, which may be informal or implied. Common advisers, shared jurisdiction or sector experience are not determinative on their own.

Question 40Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which of the following best describes the 'put up or shut up' (PUSU) mechanism in the Hong Kong takeover regime?

  1. A shareholder may require the SFC to force a mandatory offer
  2. An offeror may compel the target board to accept its offer within a fixed period
  3. A target may require a potential offeror to announce a firm intention to make an offer or announce that it will not proceed within a specified period Correct answer.
  4. A court may order the target to be wound up if no offer is made

Explanation

The PUSU mechanism allows the target, with the Executive's consent, to set a deadline by which a named potential offeror must either announce a firm intention to offer or announce that it will not proceed. This protects the target from prolonged 'siege' situations and provides market certainty.

Question 41Mergers, Acquisitions, Takeovers and Corporate Control Transactions

An offeror wishes to revise its offer during the offer period. Under the Takeovers Code, a revised offer:

  1. May be made at any time up to the closing date without any minimum remaining acceptance period
  2. Must be announced and the revised offer document despatched, and the offer must remain open for at least fourteen days after the revised offer document is posted Correct answer.
  3. Must be approved by the target board before announcement
  4. Cannot increase the offer price once the initial offer document has been posted

Explanation

A revised offer must be announced and documented, and shareholders must be given a minimum period (generally fourteen days) to consider the improved terms. The rule ensures shareholders are not rushed into accepting a late revision without adequate time to evaluate it.

Question 42Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which statement correctly describes the treatment of a 'no increase' statement made by an offeror during a takeover?

  1. The statement binds only the offeror's financial adviser
  2. The statement automatically terminates the offer period
  3. The offeror and its concert parties are generally bound by the statement and may not subsequently increase the offer except in limited circumstances permitted by the Executive Correct answer.
  4. The statement has no legal or regulatory effect and may be disregarded freely

Explanation

A no-increase statement is binding on the offeror and its concert parties under the Code, subject to limited exceptions such as a competing higher offer or Executive consent. This prevents an offeror from misleading the market about the maximum price it is prepared to pay.

Question 43Mergers, Acquisitions, Takeovers and Corporate Control Transactions

In a takeover, which of the following is the primary duty of the target board once a bona fide offer has been made?

  1. To recommend acceptance of the offer in all circumstances
  2. To resign immediately to allow the offeror to appoint new directors
  3. To negotiate the highest possible price without informing shareholders of the process
  4. To obtain competent independent advice on the offer and to communicate the substance of that advice to shareholders Correct answer.

Explanation

The Code requires the target board to obtain competent independent advice on the offer and to make the substance of that advice known to shareholders, together with its own recommendation. The board must act in the interests of shareholders as a whole and cannot simply defer to the offeror.

Question 44Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which of the following would most likely be treated as a frustrating action requiring shareholder approval under the Takeovers Code once a takeover offer has been announced?

  1. The target declaring its previously announced and routine interim dividend
  2. The target appointing a new chief financial officer
  3. The target renewing a standard property insurance policy
  4. The target issuing a large block of new shares to a friendly party at a discount Correct answer.

Explanation

Issuing shares to a friendly party at a discount would materially dilute the offeror's stake and impede the offer, and is a classic frustrating action requiring shareholder approval. Routine matters in the ordinary course of business, such as declared dividends, management appointments and insurance renewals, are not frustrating actions.

Question 45Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Under the Takeovers Code, an offer must generally remain open for acceptance for how long from the date the offer document is posted?

  1. At least 60 days
  2. At least 21 days Correct answer.
  3. At least 90 days
  4. At least 7 days

Explanation

The Code requires an offer to be open for acceptance for at least 21 days from the date of posting of the offer document. This minimum period allows shareholders adequate time to consider the terms and any competing developments.

Question 46Mergers, Acquisitions, Takeovers and Corporate Control Transactions

A person holds 28% of a Hong Kong listed company and acquires a further 3% from a single shareholder. What is the consequence under the Takeovers Code?

  1. No obligation arises because the acquisition was from a single shareholder rather than on-market
  2. The person must notify the SFC but has no offer obligation
  3. The person must reduce its holding back below 30% within twelve months
  4. The acquisition triggers a mandatory general offer obligation because the person's holding reaches or exceeds 30% Correct answer.

Explanation

Crossing the 30% threshold by any means, including a private block purchase from a single shareholder, triggers the mandatory general offer obligation. The identity or number of sellers is irrelevant to the threshold test.

Question 47Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which of the following statements about the role of the financial adviser to an offeror under the Takeovers Code is correct?

  1. The financial adviser's role is limited to preparing the offer document without any confirmation duties
  2. The financial adviser may be a connected person of the offeror without restriction
  3. The financial adviser must be independent of the offeror and must confirm to the Executive that the offeror has sufficient resources to satisfy full acceptance of the offer Correct answer.
  4. The financial adviser is responsible for setting the offer price on behalf of the target

Explanation

The Code requires an offeror's financial adviser to be independent and to confirm that the offeror has sufficient financial resources to satisfy full acceptance of the offer. This confirmation protects shareholders against offers that cannot be completed for lack of funds.

Question 48Mergers, Acquisitions, Takeovers and Corporate Control Transactions

In a scheme of arrangement, what is the significance of the court's sanction hearing?

  1. The court reviews whether the statutory procedure was followed and whether the scheme is fair, and its sanction gives the scheme binding effect on all shareholders Correct answer.
  2. The court determines the tax treatment of the scheme consideration
  3. The court replaces the need for a shareholders' meeting
  4. The court sets the offer price for the scheme

Explanation

The court's role at the sanction hearing is to satisfy itself that the statutory procedure was properly followed and that the scheme is one that an intelligent and honest shareholder might reasonably approve. Once sanctioned and filed, the scheme binds all shareholders, including dissentients.

Question 49Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Which statement best describes the 'chain principle' in the context of Hong Kong takeover regulation?

  1. A shareholder must disclose all companies in its group structure to the SFC before dealing
  2. An offeror must make an offer for every company in the target's supply chain
  3. An offer must be extended to holders of convertible bonds on the same terms as shareholders
  4. A person who acquires control of a company whose principal asset is a stake in a listed company may itself incur a mandatory offer obligation for the listed company Correct answer.

Explanation

The chain principle addresses indirect acquisitions of control: where a person acquires control of an unlisted or holding company whose principal asset is a controlling stake in a listed company, the acquisition may be treated as acquiring control of the listed company and trigger a mandatory offer. This prevents circumvention of the 30% rule through layered structures.

Question 50Mergers, Acquisitions, Takeovers and Corporate Control Transactions

Under the Takeovers Code, dealings by an offeror in target shares during the offer period:

  1. Are restricted and must be disclosed, and any purchases above the offer price generally require the offer to be increased to that price Correct answer.
  2. Are permitted only with the prior written consent of the target board
  3. Are permitted freely provided they are reported after the offer closes
  4. Are prohibited absolutely until the offer closes

Explanation

Dealings during the offer period are subject to disclosure and price-integrity rules: if the offeror buys target shares above the offer price, the offer must generally be increased to match. This prevents the offeror from acquiring shares on terms better than those available to all shareholders.