Conversion of unsecured loan to equity

[NARENDRA M]

Dear Sir,

my client is a private limited company. one of the promoter provided unsecured loan to the company and he wants to convert into equity. please tell me the procedure and applicability section 62 of comapnies act, 2013

regards]

narendra

[Vivek Hegde]

Dear Mr. Narendra,

It is possible if and only if the terms/option of conversion has been approved by a special resolution before raising of such loan. Following is the sub-section 3 of Section 62:

(3) Nothing in this section shall apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loans into shares in the company:

Provided that the terms of issue of such debentures or loan containing such an option have been approved before the issue of such debentures or the raising of loan by a special resolution passed by the company in general meeting.

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

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[mallik vishwanatham]

Take a letter from the lender providing their consent to convert the loan into share application money. 

Follow the provisions of Section 62(1)(c) and 42 for further issue and allotment of equity shares against to that SAM.

Thanks & Regards

Mallik

[Jayashree Chandrasekaran]

Dear Vivek,

Further to your points,if the loan was obtained during the applicability of CA1956,the company would not have passed such special resolution

Hence in such cases,can the company just obtain a letter from the concerned promoter/director and proceed to convert the unsecured loan into equity

Jayashree

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C.JAYASHREE
PROPRIETOR
S.GANESH&ASSOCIATES
CHENNAI
98840 17120

[CS Chandru]

Hi Jayashree,

The monies lent by promoter prior to April 1, 2014 as unsecured loan which is lying with company as on date would be treated as deposits as per CA 2013.

As per Sec 74, this would have been allotted shares or refunded within May 30, 2014 i.e. within 60 days of commencement of Act or else same would have been reported to RoC in Form DPT 4 and same should be refunded within 1 yr i.e. before Mar 31, 2015. Whether these things are taken care?

Thanks & Regards

CS Chandrashekhar

+91 9743148312

 

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[Vivek Hegde]

Dear Madam,

I agree with you. In that case, in my opinion only Board resolution is sufficient. 

Dear Mr. Chandru,

Your observation is correct. But even under the old companies act unsecured loan from Directors was allowed which was an exempted deposit subject to some conditions.

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[Deepika Jain]

Dear members,

is it possible for the company to allot shares against unsecured loan in respect of which the company has filed DPT-4 with the ROC.

  

Best Regards

 

Deepika Jain,
(Practising Company Secretary)

[CS Chandru]

I agree with Vivek and Deepika.

But in order to treat it as monies lent by Director, the promoter referred above should be a director of the company at time of providing such loan. If yes, he can simply give written declaration in prescribed manner and such money can be allotted shares now also.

My concern is though Sec 62 (3) provide for conversion of loan into equity without attracting to procedure under Sec 62 (1), this will apply to loan/debentures raised under CA 2013. The unsecured loan/deposits taken previously from members or director's relatives as allowed under CA 1956 would still be subject to deposits rules under CA 2013 unless they are allotted shares within May 30, 2014 or refunded.

[Deepika Jain]

Dear Sir,

I put a question that can a company allot shares against unsecured loan in respect of which DPT-4 has already been filed by the Company now Company wants to issue shares instead of refunding it  before 31st March 2015 is it possible to do that.

your views are solicited.

Best Regards

 

Deepika Jain,
(Practising Company Secretary)

[Vivek Hegde]

Dear Deepika,

As per my understanding, section 74 and there the rules mention only about repayment. There is no provision for allotment of shares irrespective of whether you have filed DPT-4 or not.

Warm Regards

CS Vivek Hegde,B.com, FCS, CWA

Vivek Hegde & Co.
Company Secretaries
No. 2034, 26th Cross, K.R.Road
Banashankari II Stage, Behind 

Sevakshetra Hospital

Bangalore-560070
Mob : 09900898223

Off: 080 26710667

[CS Chandru]

The language in the Act directs such monies be refunded within 1 year. In case a company has no money available to refund, this may be allotted shares as agreed between both the parties. As an abundant caution, a special resolution may be passed for converting loan into equity as per Sec 62 (3). 

Others views solicitated

[NARENDRA M]

the loan given by the Directors after 1.4.2014. we passed a special resolution for taking permission from shares holders for taking unsecured loan with the option to convert into loan at a price determined at the time of conversion. this special resolution must be before the taking of loan. After that we again passed the special resolution for getting permission from share holders to convert that unsecured loan into equity.

after that general meeting, we conducted Board meeting for alloting shares to director.

[Anu Pasrija]

Hello Vivek ji  

The amount standing under the head unsecured loans(taken before march 2014 ) can be converted  into equity although no SR had been passed at the time of taking loan , simply by a BR .

Please share the share the resolution 

Charms

Company Secretary in Practice

Anu Pasrija

+91-8269453819

Gwalior