What is NBFC Takeover?

In modern business markets, the use of the term ‘takeover’ is widespread. It is used in a reference when one business assumes control or management of another business. Similarly, when a company purchases an NBFC, the process is known as an NBFC Takeover. The procedure of NBFC Takeover is laid down by RBI, and it takes around 50-60 days in the process of NBFC Takeover. NBFCs sale/takeover involves a Target Company and an Acquirer Company. The NBFC takeover should be preceded by a due diligence report of the Target Company, which allows the Acquirear Company to make an informed decision.

RBI’s prior approval is required for:

• Any takeover of an NBFC, which may or may not bring a change of management in the Company.
• Any such change in the shareholding of an NBFC that would result into acquisition or transfer of shareholding of 26 per cent or more of the paid-up equity capital of the NBFC.
• Any such change in the management of the NBFC that would lead to a change of 30% of the number of directors.

RBI’s prior approval is not required in case:

• The shareholding goes beyond 26% because of the buyback of shares or reduction in capital by the approval of a competent court. However, the same is required to be reported to RBI not later than one month from its occurrence.
• The 30% change in the number of directors pertains to the change of Independent directors or due to the rotation of directors.

Now, from aforementioned points you can easily make out whether your company needs approval from RBI before proceeding further with NBFC Takeover or you are eligible to proceed without the approval and proceed for NBFC Takeover.

Steps to be followed after receiving approval from RBI:

• Prepare the Share Purchase Agreement to get it duly signed and implement the terms as listed in the agreement.
• The management is required to be handed over.
• Within the 31 days of the public notice in the newspaper the remaining consideration if any should be paid.
• All the assets of the target company, as shown in the balance sheet will be liquidated, and all the liabilities shall be paid off.
• The net worth of the company as on the date of the takeover should be calculated.

Checklist before NBFC Takeover

Before you initiate the procedure of NBFC takeover keep following things in mind:

• Thoroughly check the legal authenticity of all the documents that are to be submitted to RBI and other authorities.
• Scrutinize the previous records such as indebtedness if any, financial statements of last three years, any pending cases against the company or any legal suit pending against the company which could impact the process of NBFC Takeover.
• Check all important documents such as incorporation certificate, VAT, GST and all other such certificates availed at the time of incorporation or during the ongoing tenure of the company.
• Inspect the KYC details of the directors, promoters; investors added and at present working in the company.

When you gather information about the authenticity of the company, simultaneously you can proceed and execute a formal Memorandum of Understanding (MoU) agreement and get it signed along with a certain token of money.