Step wise procedure for conversion of unsecured loan into Compulsorily Convertible Debenture (CCD)
Section 62(3) of the Companies Act 2013 allows a company to convert loans into equity. The procedure is as follows:
- Issue a 7 days prior notice for holding board meeting to all the stakeholders.
- Convening a Board Meeting for following agenda:
- Approval of draft offer letter to be privately placed in Form no. PAS-4
- Approval of draft for private placement offer in Form No. PAS- 5.
- Open a separate bank account for receiving subscription money for issues of CCDs.
- To authorize directors of a company to complete all filings with relevant government authorities.
- To pass a resolution for the approval of notice for calling a general meeting of company shareholders and authorizing company secretary or directors of the company to issue the same
- Issue a 21 clear days prior notice for holding General meeting to all the stakeholders.
- Approve the terms of the CCD by passing a special resolution.
- Finalize the list of allottees to whom the allotment is to be made.
- Circulate Offer letter to proposed allottees.
- Open a Separate Bank Account.
- File Form MGT-14 for filing board resolution.
- File Form GNL-2:- PAS-4 and record of private placement offers in PAS-5 have to be filed with the Registrar of Companies along with GNL-2 within a period of 30 (thirty) days of the circulation of the offer letter.
- Hold a board meeting and pass a resolution for allotment of shares by converting the loan to equity. The following actions have to be taken in the board meeting:
- Pass special resolution for increasing the borrowing limit of the company to issue debentures (if applicable).
- Pass special resolution for the allotment of CCDs.
- Pass resolution for issue of letter of allotment/certificates to the allottees.
- Authorise two directors of the company to sign the certificates.
- Obtain approval for filing Form- PAS-3.
- File Form PAS-3 for filing Allotment.
- Entry in the register maintained under Section 88 of the Companies Act, 2013.
- Issue of CCD certificate to Debenture holder.
The following documents must be filed with the Registrar of Companies:
- A copy of the special resolution passed by the company’s general meeting.
- A copy of the board resolution passed by the company’s board of directors.
- A copy of the list of allottees.
- A copy of the agreement for the loan.
- A copy of the certificate of incorporation of the company.
- A copy of the memorandum of association of the company.
The company must also ensure that the following conditions are met:
- The loan must be unsecured.
- The loan must be repayable on demand.
- The interest on the loan must be at a market-related rate.
- The conversion of the loan into equity must be at a fair valuation.
Thanks and regards,
CS Aarti Kumari
M.Com, ACS, LL.B.