When an overseas shareholder enters liquidation, the shares it holds in an Indian company can quickly become the subject of competing claims. This case study shows how APCALLP's cross-border insolvency advisory work helped a Bengaluru-based medical technology company understand whether a secured lender could take its overseas parent's shares without honouring the right of first offer in the shareholders agreement, and what that meant for the remaining investors.

Executive Summary: Shareholder Rights vs Secured Creditor Rights

What was the challenge? The overseas parent and technology licensor of an Indian medical technology company entered creditors' voluntary liquidation in the United Kingdom. The overseas entity held a significant minority shareholding in the Indian company, while a secured lender holding registered all-asset debentures sought transfer of those shares. The remaining investors objected, relying on a right of first offer under the shareholders agreement.

What service did the firm provide? APCALLP reviewed the shareholders and share subscription agreement clause by clause, together with three registered debenture instruments, the winding-up documents and the liquidators' correspondence. A written briefing note was prepared setting out the contractual position, practical implications and potential negotiation structures.

What was the result? The analysis established that the secured lender could not bypass the right of first offer for purposes of transferring the shares. At the same time, the security over the shares would continue following a transfer, meaning that an investor exercising the right could acquire shares that remained subject to the lender's security. The matter therefore involved both contractual transfer restrictions and continuing security rights.

Client Overview: A Bengaluru Remote Patient Monitoring Company

• Business Type: Private limited company
• Location: Bengaluru
• Industry: Medical technology
• Business Activity: Remote patient monitoring using wearable technology deployed with institutional hospital customers
• Problem Summary: The company's overseas shareholder and technology licensor entered liquidation, resulting in competing claims concerning its shareholding in the Indian company. A secured lender sought to enforce its registered security, while other investors relied on a contractual right of first offer.

The client operated an asset-heavy recurring revenue model in the remote patient monitoring sector. Its shareholder register included two resident promoters, the overseas technology group and a group of angel investors. The relationship between the shareholders was governed by a detailed shareholders and share subscription agreement containing transfer restrictions, pre-emption rights, reserved matters and Board composition provisions.

The Challenge: Can a Secured Lender Bypass a Right of First Offer?

The central issue was whether the secured lender could transfer the overseas shareholder's shares in the Indian company without first complying with the contractual right of first offer.

The lender's security had been created and registered before the shareholders agreement was entered into, which initially suggested a potential priority issue. However, the shares in the Indian company had been acquired after the security was created, raising a further question concerning how and when the security attached to those shares.

At the same time, the other investors asserted their right of first offer without having established whether exercising that right would result in the shares being transferred to them free of the lender's security. The promoters were also prepared to support a transfer to the lender, but the contractual ability to do so had not been tested against the actual provisions of the shareholders agreement.

The matter therefore involved three competing assumptions that needed to be tested against the underlying documents rather than resolved through general principles, which is where focused cross-border insolvency advisory adds value.

Our Approach: Clause-Level Shareholders Agreement and Debenture Review

Our transaction advisory team began this cross-border insolvency advisory review with the definitions section of the shareholders agreement and then examined the operative transfer provisions.

The agreement defined “Transfer” broadly to include a sale, pledge, creation of a security interest, transfer by operation of law and dispositions occurring voluntarily or involuntarily. This definition was central to determining whether enforcement of security constituted a transfer for the purposes of the contractual restrictions.

The right of first offer provision was then reviewed for exceptions. The agreement contained an exception for transfers to affiliates, but the secured lender was not an affiliate of the overseas shareholder. No exception was identified for enforcement of security or insolvency events.

The three registered debenture instruments were separately reviewed, as part of a document-level due diligence exercise, to establish the scope of the security. The analysis confirmed that the instruments created a fixed charge over stocks, shares and securities then owned or subsequently acquired, together with a floating charge over the undertaking and a negative pledge. The floating charge was also identified as having crystallised on commencement of the liquidation.

Finally, the liquidators' correspondence was reviewed. The liquidators had themselves served notice under the right of first offer provision, which was relevant to the interpretation and practical application of the contractual restrictions.

Key Strategies in Our Cross-Border Insolvency Advisory

Establishing the Interaction Between the Two Rights

Rather than treating the matter as requiring one right to defeat the other, the analysis distinguished between the transfer process and the security attaching to the economic value of the shares. The right of first offer governed the transfer process, while the charge continued to affect the shares after transfer.

Identifying the Consequence of an Encumbered Transfer

The liquidators' notice stated that the shares would transfer subject to existing security. The practical consequence was examined: an investor exercising the right of first offer could acquire the shares while they remained encumbered, leaving the lender able to enforce its security subsequently.

Assessing the Acceptance-Window Issue

A shareholder had responded with a materially lower price. The analysis considered whether that response constituted an exercise of the right or a counter-offer. The position set out in the briefing was that a counter-offer at a varied price constituted a rejection, while also noting that the office-holders should issue a formal lapse notice before proceeding.

Presenting Commercial Options to the Board

Five potential structures were identified for consideration: strict enforcement, reopening at a revised price, a part-part arrangement between investors and the lender, a joint acquisition vehicle and a tripartite release-and-acquire arrangement. These were presented as options for the Board rather than as a recommendation, recognising that the ultimate choice was commercial rather than legal.

Identifying the Limits of the Analysis

The engagement distinguished the contractual analysis from insolvency-specific questions under the relevant overseas jurisdiction. The source case study notes that counsel qualified in the relevant overseas jurisdiction should be engaged for those questions.

Outcome: A Documented Position on Share Transfer Restrictions and Continuing Security

The cross-border insolvency advisory engagement produced a written position establishing that:

• The secured lender could not bypass the contractual right of first offer for purposes of the share transfer.
• The charge would nevertheless continue to affect the shares following a transfer.
• The right of first offer therefore did not necessarily result in the acquiring investor receiving unencumbered shares.
• The liquidators' own notice supported the application of the contractual transfer mechanism.
• The commercial outcome depended on negotiation between the relevant parties rather than on further consideration of which right simply “won.”

The engagement therefore clarified the interaction between the contractual transfer restrictions and the registered security and provided the parties with a documented basis for considering the available commercial structures.

Conclusion: Why Contract-Led Cross-Border Insolvency Advisory Matters

The matter demonstrated the importance of analysing the actual contractual language when shareholder rights and secured creditor rights intersect during a cross-border insolvency. Effective cross-border insolvency advisory starts with the documents, not with assumptions about which right should prevail.

The conclusion did not depend on treating either the right of first offer or the secured charge as automatically overriding the other. Instead, the analysis distinguished the contractual process governing the transfer from the security that continued to affect the shares after transfer.

APCALLP delivered a written position covering the contractual transfer restrictions, continuing security, acceptance-window issue and potential commercial structures, while clearly identifying the need for jurisdiction-specific overseas insolvency counsel where appropriate. Where such matters also touch statutory registers and filings, our secretarial and company law support and investor advisory services help shareholders and Boards act on the position.

Facing a Shareholder Dispute Linked to an Overseas Insolvency?

If an overseas shareholder, parent or licensor of your company has entered insolvency, APCALLP can review your shareholders agreement, security documents and liquidators' correspondence and set out a clear, documented position. With offices in Kochi, Kozhikode and Bengaluru, our team works with founders, investors and Boards across India. Talk to APCALLP to discuss your matter.