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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Himalaya Foods Ltd is in default in repaying fixed deposits it accepted earlier, and the default is continuing. Its board wants to acquire shares of a target company by purchase. What does the Companies Act, 2013 provide?

The company cannot make the acquisition while the deposit default continues. The Act bars loans, guarantees, security and acquisitions by a company in default of deposit repayment or interest until the default ends; a special resolution or being within limits does not remove the bar.

  1. AIt cannot make the acquisition until the default is no longer subsistingCorrect
  2. BIt may proceed if a special resolution is passed
  3. CIt may proceed if the investment is below 60% of net worth
  4. DIt may proceed if the public financial institution consents

Explanation

Section 186(8) bars a company in default in repayment of deposits or interest from giving loans or guarantees, providing security or making an acquisition while the default subsists. Resolutions or limits do not cure this bar. Only ending the default removes it.

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