Merger of insurers: Irdai releases draft norms on shareholder compensation

Says those whose rights against the acquiring insurer have been reduced, must be paid compensation based on the residual value of assets

The insurance regulator on Thursday released draft guidelines on determination of compensation to shareholders on the event of merger of an insurer. In it, the regulator has said that shareholders whose rights against the acquiring insurer have been reduced, must be paid compensation based on the residual value of the assets.

According to the regulator, residual value assets will be the amount equal to the value of the assets of the acquired insurer as on the day minus the total amount of liabilities. It has said, the compensation can either be paid in cash or kind.

The Irdai has further said, “Every shareholder of the acquired insurer shall be given such amount as compensation, as bears to the residual value of the assets, the same proportion as the amount of paid-up capital of the shares held by the shareholder bears to the total-up capital of the acquired insurer”.

In cases where the equity shares of one or more shareholders is not fully paid-up, the unpaid portion on such equity shares shall be deducted from the compensation payable, the regulator said. And, where the preference shares of acquired insurer have not been taken over by the acquiring insurer, such preference shareholders shall get preference over equity shareholders.

Furthermore, if the amount of compensation paid by the acquirer is not acceptable to holders of not less than 10 percent of the paid up equity capital of the acquired insurer, such aggrieved persons may prefer an appeal to the Securities Appellate Tribunal.