Slump sale means sale of assets of the Company as mentioned in Regulation 32 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (As Amended).
A slump sale, unlike an asset sale, is the transfer of a
business undertaking as a whole, on a going concern.
Slump sale
can be made through a Business Transfer Agreement or through a Scheme of
Arrangement under section 230-232 of Companies Act, 2013.
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Slump sale
through a BTA is less time-consuming and confusing than the Scheme
of Arrangement. However, it is still the less favored way for the
companies when the stakes are higher. There are numerous factors that
determine which method is better in what condition.
Slump sale of
assets as mentioned in Asset Sale Process Memorandum would be, on ‘as is where
is basis’ and “No recourse” basis and the proposed sale does not entail
transfer of title, except the title which the Company has on the assets as on
date of the transfer, for a lump sum sale consideration without assigning value
to individual assets.
That is, there is a
presumption in case of a transfer of this nature that the business entity will
continue its operations in the future and will not liquidate or be forced to
discontinue operations due to any reason.
Slump sale happens when acquirer wants to acquire the whole
set up as it is, without acquiring the entity housing the business.
In this case, the acquirer is not only interested in the
assets, but in the whole processing unit. The operations would carry on as
usual without much disruptions, but under the arm of the acquirer.
The purpose
of restructuring a business through a slump sale could be:
1. Business
growth.
2. Better
profits.
3. Stamp duty
only on immovable properties.
4. Low
capital gain tax instead of ordinary tax on an asset sale.
5.
Cost-effective process.
6. Takes
minimal time in procedure & execution.
Manners to
affect a slump sale:
1. Business
Transfer Agreement (BTA).
2. Scheme of
Arrangement.
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