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Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

5 Aug, 2022

Key takeaways

No express framework exists for nominee directors to share UPSI with nominating shareholders
Natural expectation that nominee directors should represent their nominators’ interests – not permitted under law
Since nominee directors’ fiduciary duty remains towards the company and stakeholders, nominee directors are paradoxically placed and exposed to significant liabilities
Judicial precedents have implicitly endorsed a more practical view, where the nominee director protects the nominating shareholder’s interests

Private Funds: Corpus v Investible Funds – Need to reconsider SEBI’s penalty order?

25 July, 2022

Key takeaways

SEBI has strictly construed the term ‘investible funds’ leaving no scope for commercial nuances.
SEBI rules that estimated expenditure cannot be offset against estimated income streams when calculating investible funds
SEBI appears to be driven by the view that investors should not be over-concentrated in a single asset.
AIFs are a sophisticated asset class, and it may not be appropriate to adopt such a paternalistic stand on investor protection.

Private Credit: Interest on NCDs recharacterized as dividends

29 June, 2022

Key takeaways

Tax authorities recharacterized interest income on NCDs as dividends
Interest recharacterization has not taken place under GAAR
Investors can prevent such mischaracterization by demonstrating the nature of the underlying instrument, periodicity of payments, maturity date, management rights, etc.

Listed or Unlisted InvITs – Which way to go?

22 June, 2022

Key takeaways

Tracking evolution of InvITs – resurgence and success
Debate between private listed and unlisted InvITs – which way to go?
Unlisted InvITs remain attractive for investors seeking tax optimal returns and deregulated landscape
Perception that unlisted InvITs have lost SEBI’s favour may not be accurate

Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee

13 June, 2022

Key takeaways

SC overrules a series of prior rulings which held that pledgee becomes the ownerof pledged shares upon invocation.
SC holds that even though pledgee is recorded as beneficial owner upon invocation, pledgee only receives ‘special rights’ and not ‘ownership’ over pledged shares.
The term ‘actual sale’ means sale to a third party, not to the pledge.
Takeover Code and other legislations may need a ‘holistic review’ in view of thisruling.
Approach to regulatory filings and compliances will need to be reassessed – whoholds the ownership and voting rights?

Decoding Boardroom Dilemmas

24 May, 2022

Key takeaways

Transferring a majority-revenue generating business into a private subsidiary (hiving off) and raising funds at the subsidiary level is increasingly seen as a preferred alternative to direct listed acquisitions or slump sales
Hiving off may result in a ‘holding company discount’ and public shareholders lose out on value
Public shareholders’ involvement in moving businesses downwards or raising further funds is extremely limited, permitting promoters to proceed unhindered with such transactions
Directors should exercise diligence and business judgement, reconcile commercial imperatives with shareholder interests, record robust reasoning and put in place necessary mitigants before approving such structures

Denial of tax treaty benefits: Blueprinting defence strategies for PE funds - A tax litigation perspective

19 May, 2022

Key takeaways

Revenue has issued reassessment orders to several global PE/VC funds denying tax treaty benefits to grandfathered investments alleging treaty shopping through Mauritius and Singapore between AY 2013-14 and 2015-16
Substantial tax, interest, and penalty has been levied invoking judicial anti-avoidance principles based on a supposed lack of commercial substance in these jurisdictions
Funds confronted with reassessment orders may be forced to dip into reserves, rely on tax indemnity insurance, or invoke investor givebacks

Strong reliance on binding judicial precedent, departmental instructions, and textual interpretation of treaty language will be crucial in challenging reassessment orders
Funds will be expected to demonstrate ownership and control over funds, actual decision making by directors, and satisfy materiality thresholds to claim treaty benefits going forward
Future exits from grandfathered investments will witness greater Revenue scrutiny including reliance on GAAR and MLI-PPT if tax considerations drove a jurisdictional choice

Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investment decisions

9 May, 2022

Key takeaways

SEBI holds investors of AIFs having UPSI/ MNPI in breach of insider trading norms for investment decisions of AIFs
Investors into pooled investment vehicles exposed to substantial risk for actions beyond their control and visibility
Compliance seems rather impractical and creates complications for both the AIF and its investors – bad law that needs to studied for its potential implications

Private Funds: Six considerations when negotiating carry clawback provisions

4 May, 2022

Key takeaways

Clawback liability must be ascertained with respect to each investor.
Standalone clawback obligations may not be sufficient.
The clawback provision should include a true-up mechanism for sponsors.
Tax leakages must be accounted for when determining clawback liability.
The waterfall sequence must be maintained when clawed back amounts are distributed to the LPs.
In a no-fault removal scenario, the original carry recipients must be released from future clawback liability.

Top 5 Tax Considerations When Structuring Debt Investments in India

18 Apr, 2022

Key takeaways

Recent developments in the Indian tax regime have brought India closer to global norms though
hybrid instruments that have come under increased scrutiny
GAAR provisions have enabled tax authorities to examine the commercial substance of
transactions, underscoring the importance of purpose, pooling, and people
Hybrid debt instruments face varied treatment under DTAAs vis-à-vis capital gains which may
result in challenges when claiming treaty benefits
Beneficial ownership rules in DTAAs restrict treaty benefits to the entity exercising actual control
over a return/income received…read more

Threat of valuation litigation in Public M&A – Carlyle-PNB Effect!

31 Mar, 2022

Key takeaways

SEBI floor price prescription in case of fund raises should not automatically dislodge directors’ duty to exercise independent judgment and maximise shareholder value.
Target boards to proactively consider appointing an independent banker and running a robust auction process for capital raises.
Investors should strategise for high stakes valuation litigation by shareholders failing which the entire transaction could be potentially derailed…read more

GIFT City – Analysing New Fund Management Regulations and why GIFT City still doesn’t work

26 Feb, 2022

Key takeaways

IFSCA proposes significant shift in regulatory regime for investments funds – shift from investment vehicle towards fund management entity (FME).
Replacement of Category I, II and III AIFs under present AIF Framework with investment schemes viz. Venture Capital Scheme, Restricted Scheme (Non-Retail) and Retail Schemes.
Streamlined approval process of investment schemes by introduction of ‘Green Channel’.
Single point registration (as FME) as opposed to multiple registrations in different regulations.
Offers significant room for growth and innovation of new financial products in a sandbox environment …read more

SEBI Introduces Special Situation Funds: Opens doors for acquisition of stressed loans without ARC intermediation

18 Feb, 2022

Key takeaways

Special Situation Funds (SSF) have been launched Category – 1 AIF for sophisticated investors.
Offshore investors no longer have to rely on an Asset Reconstruction Company / Asset Reconstruction Trust framework to invest in stressed assets.
25% diversification requirement not applicable to SSF.
Ability to buy loans directly, not restricted to ‘securities’.
Edge over ARTs – allowed to act as resolution applicants in IBC, acquire uncapped equity of stressed borrowers, and no FPI registration required to invest …read more

SEBI formalises the use of co-investments but leaves some question marks?

9 Feb, 2022

Key takeaways

SEBI introduces a new co-investment framework permitting AIF investors to co-invest alongside the AIF through portfolio managers.
The new framework provides that co-investments cannot be on more favourable terms than AIF investments.
Co-investments are not permitted in listed securities.
The global practice of using dedicated co-investment vehicles remains a challenge under the current framework.
There is a tax risk that the co-investors and the AIF will be regarded as an association of persons (AOP) and be taxed at the rate of approximately 30% ….read more

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Research

Decoding Boardroom Dilemmas (Part III): Can Nominee Directors Share UPSI with Nominating Shareholders?

Key takeaways

Private Funds: Corpus v Investible Funds – Need to reconsider SEBI’s penalty order?

Key takeaways

Private Credit: Interest on NCDs recharacterized as dividends

Key takeaways

Listed or Unlisted InvITs – Which way to go?

Key takeaways

Private Credit: Supreme Court holds that ownership of pledged shares remains with pledgor despite transfer to pledgee

Key takeaways

Decoding Boardroom Dilemmas

Key takeaways

Denial of tax treaty benefits: Blueprinting defence strategies for PE funds - A tax litigation perspective

Key takeaways

Private Funds: SEBI holds AIF investors in breach of insider trading norms for AIF’s investment decisions

Key takeaways

Private Funds: Six considerations when negotiating carry clawback provisions

Key takeaways

Top 5 Tax Considerations When Structuring Debt Investments in India

Key takeaways

Threat of valuation litigation in Public M&A – Carlyle-PNB Effect!

Key takeaways

GIFT City – Analysing New Fund Management Regulations and why GIFT City still doesn’t work

Key takeaways

SEBI Introduces Special Situation Funds: Opens doors for acquisition of stressed loans without ARC intermediation

Key takeaways

Key takeaways

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