The account takeover prevention code is a set of rules and regulations which has been stated under the Securities Exchange Board of India Act (SEBI), which determines whether acquisitions of shares of a company results in a takeover of the company. The basic need of this code lies in its importance of implementing a fair and transparent mode of takeover of a company. This was done to ensure that the acquirer gives the investors the opportunity to exit the deal if they feel that the functioning of the control is not in the best interest of the company. This code provides an interface where the investors, acquirer and the company representatives can interact.
The account takeover prevention Code was first established in the year 1994 but was amended in the year 1997. This code defines an acquirer as a person who acquires shares in the target company directly or via indirect means through a representative of his own. Buying adequate number of shares of the company concerned gives him the voting rights and control over the company’s functioning policies. The representatives of the potential buyer can be anybody without any perquisite requirements however they should share the common zeal of taking control over the target company’s proceedings. Such persons would come under the category of something known as”acting in concert”, if they acquire shares of the target company via an understanding or an agreement.
The account takeover prevention Code has highlighted certain relationships. It could be a relationship of mutual funds (MFs) with the sponsors or Financial Institution (FIs) with the account holders. This code gets triggered whenever there is a change of power or control within the company. At this particular time period, the acquirer has to make an open offer of getting at least 20% of the company’s equity. Control of the company gives an individual or the person acting in concert the right to appoint majority of the higher executives, change and modify the company’s decision making policies and vary the financial divisions of the company. The process works as follows:
Any acquirer after getting control of the sufficient voting rights of the company has to officially report this to the company concerned within four working days. The company in turn reports this information to the stock exchange (SEs) within seven working days span. When an acquirer crosses the 15% equity share level, he/she can make an open bid for 20% equity value.
The most important aspect of this Code is whether the acquirer should make any disclosures about his purchases to other agencies or not. As far as the talks have been going around it has been decided that apart from making disclosures at around 5 percent equity level, acquirers can even make the details available of 10 percent and 14 percent equity levels respectively. The discourses can be made available to the SEs too. There is a very high probability that these decided talks will be implemented in form of an act vey soon by the government of India.
Takeovers are healthy for small companies because it gives them an opportunity to exit the market at a price well satisfied to them. However they can be disastrous for big leading [https://spycloud.com/] players in any industry.