Mergers & Amalgamations under the Companies Act, 1956
Mergers & Amalgamations under the Companies Act, 1956
The terms merger and
amalgamation have not been defined in the Companies Act, 1956
(hereinafter referred to as the Act) though this voluminous piece of
legislation contains 69 definitions in Section 2.
The terms merger and amalgamation are synonyms and the term ‘amalgamation’, as per Concise Oxford Dictionary, Tenth
Edition, means, ‘to combine or
unite to form one organization or structure’.
The provisions relating to merger and
amalgamation are contained in sections
390 to 396A in Chapter V of Part VI of the Companies Act, 1956. Any proposal of amalgamation or
merger begins with the process of due diligence, as the proposal for merger
without due diligence is like entering a tunnel with darkness growing with each
step. The due diligence process makes the journey see the light at the end of
the tunnel – the light of wisdom to amalgamate or not. Presently, the High
Court enjoys powers of sanctioning amalgamation matters under section 394 of
the Act though it is a matter of time when this power will be exercised by
National Company Law Tribunal, a forum where Chartered Accountants shall be
authorized to appear.
Mergers --------- M --------- Marriages
De-mergers -----D --------- Divorces
The beginning to
amalgamation may be made through common agreements between the transferor and
the transferee but mere agreement does not provide a legal cover to the
transaction unless it carries the sanction of High court for which the
procedure laid down under section 391 of the Companies Act should be followed
for giving effect to amalgamation through the statutory instrument.
Merger Means: Merger of two or more companies in
such a manner that all assets and liabilities of the amalgamating company immediately
before the amalgamation, become the assets and liabilities of the amalgamated
company
and
Shareholders holding not less than 3/4th in value of the
shares in the amalgamating company become shareholders of the
amalgamated company by virtue of the amalgamation
Procedure for merger and
amalgamation is different from takeover. Mergers and amalgamations are
regulated under the provisions of the Companies Act, 1956 whereas takeovers are
regulated under the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations.
Applicable Indian Laws
1. Companies Act, 1956 –
[Sec 391-394]
2. Listing Agreement
3. Accounting Standard - 14
4. SEBI Takeover Code (in
case of acquisition by/of a listed company)
5. Company Court Rules
6. FEMA (in case of merger
of companies having foreign capital)
7. Competition Act, 2002
8. Income Tax Act, 1961
9. Indian Stamp Act
Coverage:
Ø
Compromise & Arrangement between a company and its
creditors or any class of them; or
Ø
Compromise & Arrangement between a company and its
members or any class of them
Who can apply:
Ø
Company itself
Ø
Creditors
Ø
Members
Ø
In the case of a company which is being wound-up, the
liquidator.
Approvals and
sanctions required from:
o
Dual criteria for approval from members- more than a special
resolution
Ø
majority of
members/creditors, as the case may be, in number
Ø
representing
three-fourth in value
o
Sanction from the High Court
STEPS for Merger &
Amalgamation:
o
To prepare
the draft scheme of amalgamation/arrangement.
o
To get the valuation report for the
purposes of Shares Exchange Ratio
o
To hold Board Meeting for
·
Taking note of the valuation report
·
Taking note of the share exchange
ratio,
·
Taking note of the draft scheme of
amalgamation
·
Authorizing someone to sign all the
application, petition, affidavits etc. on behalf of the company.
· Filing of application before the
Hon’ble High Court under section 391 of the Act for
convening/dispensing with
the meetings of shareholders and creditors of the applicant
companies.
· Order of the High Court for convening
of the meetings of the shareholders/creditors and
appointment of Chairman.
The Judge gives directions (Form No. 35) in respect
of the following matters:-
o Determining the class or classes of creditors
and/or of members whose meeting or
meetings have to be held
o
The time and place of such meeting
o
Appointing a chairman for the
meeting(s)
o
Fixing the quorum and the procedure to
be followed at the meeting(s)
o
Notice of the meeting and the
advertisement of such notice
o
The time within which the chairman of
the meeting is to report to the Court the result of the meeting
o
Such other matters as the Court may
deem necessary
o
Such other matters as the Court may
deem necessary.
Find form 35 http://www.companyliquidator.gov.in/Form-035.pdf
.....
· To finalize the draft notice of
meetings of the creditors/shareholders (Form No 36).
Find form 36 http://www.companyliquidator.gov.in/Form-036.pdf...
· To get the notice of the meeting &
Explanatory Statement approved from the Chairman
appointed by the Court &
Registrar of the High Court
· To send the notice (Form 36)
individually to the shareholders / creditors along with copy
of the Scheme, Explanation Statement, Form
of Proxy (Form No. 37)
at least 21 clear days
before the date fixed for the meeting.
· To give advertisement in the newspaper
at least 21 clear days before the date of the meeting (Form No 38)
Find form 38 http://www.companyliquidator.gov.in/Form-038.pdf
· Chairman to file affidavit stating that
the directions regarding the issue of notice of
advertisement & dispatch of
notices have been complied with (at least 7 days before the date
of the
meeting).
· To convene meetings of the
shareholders/creditors - Pass the Resolution with requisite
majority
· File Form MGT-14 with ROC within 30
days of passing of resolution.
· The chairman of the meeting(s) shall
submission its Report within 7 days after the conclusion
of the meeting to the
Court in after the conclusion of the meeting to the Court in Form No 39.
· To file petition for obtaining sanction
of the Court for the scheme along with all Annexure at
the High Court for
confirming compromise/arrangement Form No. 40 within 7 days of filing
the Chairman’s Report.
·
Notice of the hearing shall be advertised in the same papers in which
the notice of the meeting was advertised, or in such other papers as the Court
may direct, not less than 10 days before
the date fixed for the hearing.
· To follow up with the RD, ROC and OL
for submitting their reports that affairs of the Transferor Company and
Transferee Company are not prejudicial to the interest of the members or to
public interest
· To ensure that RD and OL submit the
report with the High Court before the final date of hearing (Guidelines by MCA
in next slide).
· To file certified true copy of the
order within 30 days with the Registrar of Companies (e-form- INC-28).
·
To annex copy of the order of every
copy of the Memorandum of the transferee company.
The Post Merger Secretarial
Obligations
There are various formalities to be
complied with after amalgamation of the
Companies is given effect to and
allotment of shares to the shareholders of the
Transferor
Company is over. These formalities include filing of the returns with Registrar
of Companies, transfer of investments of transferor company in; the Name of the
transferee, intimating banks and financial institutions, creditors and debtors
about the transfer of the transferor company’s assets and liabilities in the name
of the transferee company, transfer of employees, gratuity, PF and Pension funds
etc.
STEPS FOR MERGER & AMALGAMATION: As given below
THESE RULES SHALL BE CITED AS THE
COMPANIES (COURT) RULES, 1959, AND SHALL COME INTO FORCE ON THE 1ST DAY OF
OCTOBER, 1959:
CONTENTS OF THE SCHEME
o
Particulars about transferee and
transferor companies;
o
Appointed Date (controversy as regards
Appointed Date was set to rest by the Supreme Court in Marshall Sons & Co
case)
o
Effective Date
o
Capital Structure Capital Structure
o
Objective of Amalgamation
o
Vesting of property form the Appointed
Date
o
Share Exchange ratio Share Exchange
ratio
o
Manner of conduct of business of
Transferor Companies between the Appointed Date and Effective Date
o
Effect of amalgamation on
contracts/litigations of the Transferor Companies
o
Service of Employees of Transferor
Companies
o
Dissolution of Transferor Companies
o
Main terms of transfer of assets from
transferor to transferee with power to execute on behalf or for transferee the
deed or documents being given to transferee
o
Conditions as to carrying on the
business activities by transferor between ‘appointed date’ and ‘effective date’
o
Description of happenings and
consequences of the scheme coming into effect on effective date
o
Share capital of transferor company
specifying authorized capital, issued capital and subscribed and paid-up
capital ;
o
Surrender of shares by share-holder of transferor
company for exchange into new share certificates ;
o
Conditions about payment of dividend,
ranking of equity shares pro-rata dividend declaration and distribution ;
o
Status of employees of the transferor
companies from effective date and the status of the provident fund, gratuity
fund, super annuity fund or any special scheme or funds created or existing for
the benefit of the employees;
o
Treatment on effective date of any
debit balance of transferor company balance sheet ;
o
Miscellaneous provisions covering
income-tax dues, contingencies and other accounting entries deserving attention
or treatment ;
o
Commitment of transferor and transferee
companies towards making applications/ petitions U/s-391 and 394 and other
applicable provisions of the Companies Act, 1956 to their respective High
Courts ;
o
Enhancement of borrowing limits of the
transferee company upon the scheme coming into effect ;
o
Transferor and transferee companies
give assent to change in the scheme by the court or other authorities under the
law and exercising the powers on behalf of the companies by their respective
Boards ;
o
Description of powers of delegatee of
transferee to give effect to the scheme;
o
Qualification attached to the scheme,
which require approval of different
agencies,
etc ;
o
Description of revocation/ cancellation
of the scheme in the absence of
o
approvals qualified in Clause-XX above
not granted by concerned authorities;
o
Statement to bear costs etc, in
connection with the scheme by the transferee company ;
ADDITIONAL REQUIREMENTS
FOR LISTED COMPANIES- CLAUSE 24
Ø File the scheme with the
SE, for approval, at least a month before it is
presented to the Court
Ø Explanatory statement u/s
393 should contain
Ø pre
and post pre and post-arrangement or amalgamation (expected) capital arrangement
or amalgamation (expected) capitalstructure
Ø shareholding
pattern
Ø Obtain “fairness opinion”
from an Independent merchant b k l ti f t / h d b
th l bankers on valuation of assets/shares done by the valuer.
Ø
While submitting the scheme with the SE, also submit an auditors’ certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.
While submitting the scheme with the SE, also submit an auditors’ certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.
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