A Comparative Analysis of Minority Squeeze-Outs
Volume IV, Issue I, 2021
Squeeze-out implies compulsorily acquiring the equity shares of a company from the minority shareholders by giving them compensation in cash. Squeeze-outs are both visible and palpable manifestations of a controlling shareholder’s raw power within the corporate machinery- the ability to openly force minority shareholders to exit the company by accepting a certain price for their shares. Yet, squeeze-outs can be value enhancing at times due to the benefits of enabling the controller to acquire the entire company. Perhaps due to this rather conflicted and dramatic background, squeeze-out regulation takes on varying hues across multiple jurisdictions.
In India, the concept of squeezing-out minority shareholders has always existed but it was explicitly introduced in the Companies Act, 2013. The mechanism for minority squeeze out in India is quite similar to that in UK. In India, the controllers can choose among several available transaction structures to implement a squeeze-out. These include the compulsory acquisition mechanism, scheme of arrangement, and reduction of capital. Unsurprisingly, the structure most commonly used by controllers is the reduction of capital, which provides the least protection to minority shareholders.
Since, the structure or mechanism for squeeze-out in India is quite similar to that of UK it becomes important to analyse the system in UK. The regulation of squeeze-outs in jurisdictions apart from UK i.e. USA, Germany, Singapore will also be analysed. The objective is to examine which approach or combination of approaches will be best suited for India. But the basic aim of suggesting the reforms will be protection of minority shareholders which is currently missing in India