Convert Unsecured Loan into CCD

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:

1. Issue a 7 days prior notice for holding board meeting to all the stakeholders.
2. Convening a Board Meeting for following agenda:
   1. Approval of draft offer letter to be privately placed in Form no. PAS-4
   2. Approval of draft for private placement offer in Form No. PAS- 5.
   3. Open a separate bank account for receiving subscription money for issues of CCDs.
   4. To authorize directors of a company to complete all filings with relevant government authorities.
   5. 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
3. Issue a 21 clear days prior notice for holding General meeting to all the stakeholders.
4. Approve the terms of the CCD by passing a special resolution.
5. Finalize the list of allottees to whom the allotment is to be made.
6. Circulate Offer letter to proposed allottees.
7. Open a Separate Bank Account.
8. File Form MGT-14 for filing board resolution.
9. 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.
10. 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:
    1. Pass special resolution for increasing the borrowing limit of the company to issue debentures (if applicable).
    2. Pass special resolution for the allotment of CCDs.
    3. Pass resolution for issue of letter of allotment/certificates to the allottees.
    4. Authorise two directors of the company to sign the certificates.
    5. Obtain approval for filing Form- PAS-3.
11. File Form PAS-3 for filing Allotment.
12. Entry in the register maintained under Section 88 of the Companies Act, 2013.
13. Issue of CCD certificate to Debenture holder.

The following documents must be filed with the Registrar of Companies:

1. A copy of the special resolution passed by the company’s general meeting.
2. A copy of the board resolution passed by the company’s board of directors.
3. A copy of the list of allottees.
4. A copy of the agreement for the loan.
5. A copy of the certificate of incorporation of the company.
6. A copy of the memorandum of association of the company.

The company must also ensure that the following conditions are met:

1. The loan must be unsecured.
2. The loan must be repayable on demand.
3. The interest on the loan must be at a market-related rate.
4. The conversion of the loan into equity must be at a fair valuation.

Thanks and regards,

CS Aarti Kumari

M.Com, ACS, LL.B.

+91-7428522985

secretarialpro@yahoo.com