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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Ananya Textiles Ltd sells its entire dyeing division, with its assets and liabilities, to Kaveri Dyes Ltd for a lump sum of Rs 40 crore. Ananya continues to carry on its remaining spinning business. How is this restructuring best classified?

The transaction is a slump sale, a form of divestiture, because an entire undertaking is transferred as a going concern for a lump sum cash price paid to the company itself. It is not a demerger, since no shares are issued to the shareholders of the seller.

  1. ASlump sale of an undertaking, a form of divestitureCorrect
  2. BDemerger in which shares are issued to Ananya's shareholders
  3. CBuy-back of Ananya's own shares
  4. DReduction of share capital

Explanation

Transfer of an undertaking as a going concern for a lump sum consideration, without values assigned to individual assets and liabilities, is a slump sale and a form of divestiture. A demerger would involve the resulting company issuing shares to the transferor's shareholders. Here cash is paid to Ananya itself, so the demerger option is wrong.

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