Max Ltd. proposes to takeover Mini Ltd. The Share capital of Max Ltd. and Mini Ltd. comprises of 15,000 and 10,000 equity shares of ₹10 each and 5000 and 4000 10% preference shares of ₹100 each respectively. The purchase

CS Professional · Corporate Restructuring, Insolvency, Liquidation & Winding-up · PYQS · December 2021
Max Ltd. proposes to takeover Mini Ltd. The Share capital of Max Ltd. and Mini Ltd. comprises of 15,000 and 10,000 equity shares of ₹10 each and 5000 and 4000 10% preference shares of ₹100 each respectively. The purchase consideration to be discharged is as under: Equity shareholders of Mini Ltd. will be given 50 equity shares of ₹10 each of Max Ltd. fully paid up in exchange for every 5 shares held in Mini Ltd. Issue of 10% preference shares of ₹100 each in the ratio of 4 preference shares of Max Ltd. for every 5 preference shares held in Mini Ltd. In addition to share capital stated above, Max Ltd has 12% debentures of ₹100 each amounting to ₹5,00,000 and Mini Ltd has 13% debentures of ₹100 each amounting to ₹4,00,000. It was agreed to issue 12% debentures of ₹100 each of Max Ltd. worth ₹5,00,000 to the debentureholders of Mini Ltd. Compute Purchase consideration and capital after takeover. Also comment upon treatment of debentureholders of Mini Limited during the above takeover.

Answer & Explanation:

Computation of Purchase Consideration: Calculation Amount (₹) 1. Equity Shares 10,000 shares * (50/5) * ₹10 ₹10,00,000 2. 10% Preference Shares 4,000 shares * (4/5) * ₹100 ₹3,20,000 Purchase Consideration ₹13,20,000 Computation of Capital of Max Limited after Takeover: Calculation Amount (₹) 1. Equity Share Capital (15,000 shares + 1,00,000 shares) of ₹10 each ₹11,50,000 2. 10% Preference Share Capital (5000 Preference shares + 3200 Preference Shares) ₹8,20,000 Capital of Max Limited after Takeover ₹19,70,000 Treatment of debentures in purchase consideration: Issue of debentures will not form part of purchase consideration as these are issued to debenture holders. Further, Increased number of debentures are issued to debenture holders of Mini Ltd, as there is reduction in rate of interest on debentures.

Topics: Corporate Restructuring

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