FAST TRACK MERGER- A Novel Concepts
FAST TRACK MERGER- A
Novel Concepts
Merger is a restructuring tool available to Indian
conglomerates aiming to expand and diversify their businesses for various
reasons whether it is to gain competitive advantage, reduce costs or unlock
values. In commercial parlance, merger essentially means an arrangement whereby
one or more existing companies merge their identity into another existing
company or form a distinct new entity.
The Companies Act, 2013 introduce the novel
concepts fast track merger for Small Companies and Holding and its wholly owned
subsidiary Companies. This is the first significant change to merger and
amalgamations regime in the last six decades, with the previous Companies Act
having been in place since 1956. There are pragmatic reforms for Merger and Acquisitions under Companies
Act, 2013, which could make merger, acquisitions and restructuring easier for
companies.
There was a long felt need to simplify
and fast track the procedure for mergers of holding-subsidiary or companies
where interest of third parties is not involved. The act clarifies that this
fast track process shall apply not just to mergers but also to all types of
compromise & arrangements involving these companies.
Even the Companies have the option to follow the normal route of merger process if the desire
Benefits:
Cross Border merger are expected to increase
internal restructuring and Cross Border restructuring. Exit opportunity to the
dissenting shareholders is expected to reduce litigation & frivolous
complaint and representation of Income Tax Department, Sectoral Regulators
would safeguard their interest, though at the cost of prolonged process.
Provisions
of section 230 to 232 of the Act for Merger & Amalgamation is very time
cumbersome activity, as it includes clearance from many regulatory bodies and
all type of companies has to go through such route. Under the fast track
process Central government has the power to approve such scheme and there is no
need to approach to NCLT.
Sections Involved
Section 233- Merger or Amalgamation of
certain companies. This section comes into force w.e.f. 15th December,
2016.
Rule Involved
Rule 25 Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016
Notification Involved:
[1]Notification No. S.O. 3677(E), Dated 7th
December, 2016 (section become effective)
Forms involved:
CAA.9-
Notice of the scheme inviting objections or suggestions
CAA.10 -
Declaration of solvency
CAA.11
Notice of approval of the scheme of merger
CAA.12
Confirmation order of scheme of merger or amalgamation between
INC.28
Notice of Order of the Court or any other competent authority
GNL-1
Filing of Application with ROC
Non
Ostensive Clause: Section 233 start
with non ostensive clause “[4]Notwithstanding
the provisions of section 230 and section 232”. Meaning of notwithstanding is ‘in spite of
what has just been said’. It demonstrate that in spite of whatever said in
section 230 and 232 below given class of Companies can avail the option of fast
track merger (merger by Central Government (RD) without NCLT.
As in some overseas jurisdictions, the 2013 Act has introduced the new
concept of fast- track mergers and demergers. These provide the option of a simplified
and fast-track merge process, which can be used for the following and is an option
for companies:
§ Merger of Two or More Small Companies or
§ Merger between a holding company and its
wholly-owned subsidiary Company or
§ Such other class or classes of companies as may be
prescribed;
To
whom Scheme for Fast Track Merger will submit: Section 230(2)
Companies shall file application with
following below motioned authorities in whose jurisdiction registered office of
the Company is situated.
§
Central Government
(Powers are delegated to Regional Director)
§
Registrar and
§
The Official
Liquidator
FIRST STEP-
Filing of Notice of Proposed Scheme
i.
Issue of Notice of Proposed Scheme: A notice in form CAA-9 of the proposed [6]scheme inviting objections
or suggestions, if any, shall be sent to followings:
§ Registrar of Companies, where registered office of the
respective companies are situated
§ Official Liquidators, where registered office of the
respective companies are situated
§ Persons affected by the scheme
Time
period for Objections/ Suggestion:
Above mentioned all persons send
their objections/ suggestions to Company within 30 (Thirty) days of the issue
of notice to them, by the transferor company or companies and the transferee
company.
ii.
Declaration of Solvency: Each of the companies involved in the merger files a
declaration of solvency, in form CAA-10 with the Registrar of the place where the registered
office of the company is situated.
iii.
Approval from Shareholders in
General Meeting: The Companies will hold Meeting of
shareholders in following manner:
§ The objections and suggestions received are considered
by the companies in their respective general meetings
§
The scheme should be approved by
members present in the meeting, holding at least 90% of [7]total number of shares in
the General Meeting.
Notice
of General Meeting: The notice of the meeting to the
members shall be accompanied by –
§ The declaration of solvency made
in pursuance of clause (c) of sub-section (1) of section 233 of the Act
in Form No. CAA.10
§ A copy of the Scheme.
iv.
Approval from Creditors in their
Meeting: The Companies will hold Meeting of Creditors. The scheme should be approved by creditors or class of
creditors present in the meeting, representing at least 9/10 of value of
creditors.
Notice of Creditors Meeting: The notice of the meeting shall be convene by giving at least
21 days notice to the members and notice shall be accompanied by –
§ A statement disclosing the details
of the compromise or arrangement, as far as applicable.
§ The declaration of solvency made
in pursuance of clause (c) of sub-section (1) of section 233 of the Act
in Form No.
CAA.10;
§ A copy of the Scheme.
Dispensation from the Meeting
If 90% in value of creditors agree by way of affidavit
then meeting of creditors can be dispensed.
The transferee company shall within 7 days of after the
conclusion of the meeting of members or class of members or creditors or class
of creditors shall Section 233(2)
and Rule 25(4)
§
A copy of the Scheme so
approved by the members and creditors along with
§
A report of the result of each of
the meetings in Form No. CAA.11 to the Central Government (RD).
Filing
to whom:
·
Central
Government (RD)- through hand delivery or by registered post or speed post
·
Registrar of
Companies (ROC) - in Form No. GNL-1
·
Official
Liquidator (OL)- through hand delivery or by registered post or speed post
THIRD
STEP- Registration of Scheme
[9]On the receipt of the scheme, If
the Registrar or Official Liquidator has any objections or suggestions, he may
communicate the same in writing to the Central Government (RD) within a period
of 30 days. Section 233(4).
Issue
of Order:
§ Where no objection or suggestion
is received to the scheme from the Registrar of Companies and Official
Liquidator or
§ where the objection or suggestion
of Registrar and Official Liquidator is deemed to be not sustainable and
The Central Government is of the opinion that the scheme is in the
public interest or in the interest of creditors, the Central Government shall
issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12.
FOURTH
STEP- Filing of Order
Registrar
of Companies:
The
confirmation order of the scheme issued by the Central Government shall be
filed, within 30 days of the receipt of the order of confirmation, in Form INC-28 with the Registrar of
Companies having jurisdiction over the transferee and transferor companies
respectively. Section 233(7) and Rule 25(7).
Person
Concerned:
The
confirmation order of the scheme issued by the Central Government shall be
filed, within 30 days of the receipt of the order of confirmation, concerned
person. Section 233(7
FIFTH STEP- Confirmation by ROC
The
Registrar shall register the scheme and issue a confirmation thereof to the
companies and such confirmation shall be communicated to the Registrars where
Transferor Company or companies were situated.
SIXTH
STEP- Miscellaneous- Effect of Registration of Scheme
Dissolution of transferor
Companies: The registration of the scheme
transferor Companies shall be deemed to have the effect of dissolution without
process of winding-up.
Other Effects: Section 233(9)
i.
Transfer of Property or
Liabilities: Transfer
of property or liabilities of the transferor company to the transferee company
so that the property becomes the property of the transferee company and the
liabilities become the liabilities of the transferee company.]
ii.
Charge: the charges, if any, on the
property of the transferor company shall be applicable and enforceable as if
the charges were on the property of the transferee company.
iii.
Legal Proceeding: legal proceedings by or against
the transferor company pending before any court of law shall be continued by or
against the transferee company.
iv.
Another important Liability: where the scheme provides for
purchase of shares held by the dissenting shareholders or settlement of debt
due to dissenting creditors, such amount, to the extent it is unpaid, shall
become the liability of the transferee company.
SEVENTH
STEP- Transferee Company Compliances
Important Condition for Transferee
Companies: Section 233(10) A Transferee company shall not on
merger or amalgamation, hold any shares in its own name or in the name of any
trust either on its behalf or on behalf of any of its subsidiary or associate
company and all such shares shall be cancelled or extinguished on the merger or
amalgamation.
Authorized Capital:
The
transferee company shall file an [10]application with the
Registrar along with the scheme registered, indicating the revised authorized
capital and pay the prescribed fees due on revised capital.
Note on Fee:
The fee,
if any, paid by the transferor company on its authorized capital prior to its
merger or amalgamation with the transferee company shall be set-off against the
fees payable by the transferee company on its authorized capital enhanced by
the merger or amalgamation.
CONCLUSION:
The thirty days time limit imposed on the regulators will, hopefully,
ensure that they respond in a time bound manner. The exact time frame that the
entire merger process would involve will be known once it is tested. It would
be fair to say that the 2013 Act seeks to streamline and make M&A more
smooth and transparent. The new provisions should make it easier for
corporations proposing mergers as it spears to have a good system of checks
& balances to prevent abuse of these provisions.
OTHER CIRCUMSTANCES IN FAST TRACK MERGER:
We have already understood the process of Fast
Track merger as discussed above. Below we would try to give clarity on the
provision of fast track merger in the situation Registrar of Companies (ROC) or
Official Liquidator (OL) raise any objections or suggestions and send the same
to Central Government within a period of 30 days, as per provisions of Sub
Section 4 of Section 233 of Companies Act, 2013.
As mentioned in sub section 2 once the scheme is approved by
the Shareholders and Creditors The transferee company shall within 7 days of after
the conclusion of the meeting of members or class of members or creditors or
class of creditors shall Section 233(2)
and Rule 25(4)
§
A copy of the Scheme so
approved by the members and creditors along with
§
A report of the result of each of
the meetings in Form No. CAA.11 to the Central Government (RD).
Filing
to whom:
·
Central
Government (RD)- through hand delivery or by registered post or speed post
·
Registrar of
Companies (ROC) - in Form No. GNL-1
·
Official
Liquidator (OL)- through hand delivery or by registered post or speed post
Objections/
Suggestions by ROC/ OL
If the Registrar or Official Liquidator has any objections or
suggestions, he may communicate the same in writing to the Central Government
within a period of 30 (thirty) days. Section 233(4) and Rule 25(5)
Judgment
of Central Government (RD)
If the Central Government (RD) after receiving the objections
or suggestions or for any reason is of the opinion that such a scheme is not in
public interest or in the interest of the creditors, it may file an application
before the Tribunal within a period of 60 (sixty) days of the receipt of the
scheme under sub-section (2) stating its objections in Form No. CAA. 13
Decision
of Tribunal (NCLT)
On receipt of an application from the Central Government, if
the Tribunal, for reasons to be recorded in writing, is of the opinion that the
scheme should be considered as per the procedure laid down in section 232, the
Tribunal may direct accordingly or it may confirm the scheme by passing such
order as it deems fit.
CONCLUSION:
Once its directed by the tribunal to file the application as
per procedure given in section 232 then the Companies involved in M&A will
file the applications and follow the lengthy process of Merger and
Amalgamation.
Calendar of process of
Fast Track Merger
S. No.
|
Particular of Activity
|
Purpose of Activity
|
Time Period
|
A.
|
Convey of Board Meeting
|
To Approve the Scheme
|
All Companies
|
B.
|
Filing of Notice of Proposed Scheme along with copy of Scheme
|
To ROC/ OL/ Concerned Person in form No. CAA-9
|
All Companies
|
C.
|
Declaration of Solvency
|
In form CAA.10 after issue of notice
|
All Companies
|
D.
|
Convey of General Meeting
|
The scheme should be approved by members present in the meeting,
holding at least 90% of [11]total number
of shares in the General Meeting
|
All Companies
|
E.
|
Convey of Creditors Meeting
|
The scheme should be approved by creditors or class of creditors
present in the meeting, representing at least 9/10 of value of creditors
|
All Companies
|
F.
|
File a copy of Scheme and report of
the result of each of the meetings
|
In Form No. CAA.11 and Form No.CAA.9(i.e.
notice) with Within 7 days after the conclusion of the
meeting of members or class of members or creditors.
|
Transferee Company
|
G.
|
Registration of Scheme
|
Where no objection or suggestion
is received to the scheme from the Registrar of Companies and Official
Liquidator.
The Central Government (RD) is
of the opinion that the scheme is in the public interest or in the interest
of creditors, the Central Government shall issue a confirmation order of such
scheme of merger or amalgamation in Form No. CAA.12
|
Issue of Order by RD
|
H.
|
Filing of Order with ROC
|
The confirmation order of the scheme issued by the
Central Government shall be filed, within 30 days of the receipt of the order
of confirmation, in Form INC-28 with the Registrar of Companies
having jurisdiction over the transferee and transferor companies respectively
|
All Companies
|
I.
|
Confirmation by ROC
|
The Registrar shall register the scheme and issue a
confirmation thereof to the companies and such confirmation shall be
communicated to the Registrars where Transferor Company or companies were
situated
|
By
ROC
|
(Author – CS Divesh
Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi
and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
This is only a knowledge sharing initiative and author does
not intend to solicit any business or profession.
[5]
Explanation.—For the purposes of this sub-section, arrangement
includes a re-organization of the company’s share capital by the consolidation
of shares of different classes or by the division of shares into shares of
different classes, or by both of those methods
[6]
Scheme approved by Board of Directors
[7]
For calculating the 90% members present in the meeting will consider.
[8]
Referred to in sub-section (3) of section 230 of the
Act read with sub-rule (3) of rule 6 hereof
[9]
if no such communication is made, it shall be presumed that he has no objection
to the scheme.
[10]
In form SH-7 for increase in authorized capital.
demeger can be covered under this sections
ReplyDeleteno
DeleteDEMERGER IS COVERED AS PER OLD RULE. MEAN FILLING PETITION TO HIGH COURT
DeleteThis comment has been removed by the author.
ReplyDeleteAs per section 233:-
ReplyDeletefast track scheme of merger or amalgamation may be entered into between two or more small companies or between a holding company and its wholly-owned subsidiary company or such other class or classes of companies as may be prescribed.
Kindly inform what type of companies fall under "such other class or classes of companies as may be prescribed.
as of now no such companies are prescribed by MCA
Deletestill not prescribed
DeleteNeed templates for the same
Deletethere are some shareholders who are deaceased and legal representatives are not forthcoming for transmission. They constitute less than 1 % of shareholding. rest all held by holding co. whether anyway out for fast track merger?
ReplyDeleteAs per Section 233(12), this section mutatis mutandis apply to companies in respect of scheme of compromise or arrangement.
ReplyDeleteWhether Demerger can be done under this Section, Kindly explain?
Declaration of solvency in Form CAA 10 includes Audited statements of assets and liabilities and audit report on the same. Whether the audit report can be prepared in accordance with the SA 800?
ReplyDeleteOtherwise, under what SA and kindly suggest the format for statement of assets and liabilities to be given.
Thanks in advance
This comment has been removed by the author.
ReplyDeleteCompany A Ltd. is holding 99.98% in B Ltd. Is both company can go for merger process through Fast Track Route?
ReplyDeleteKindly Suggest.
Thanks
CS Monisha Meghna
No, company should be wholly owned subsidiary i.e. 100% shares held by the holding co. In your case, 99.98 % is holding which is not 100%. Therefore, normal merger will apply
ReplyDeleteFor creditors' approval it is written as "indicated in a meeting convened", does it mean to consider the value of creditors who have attended the meeting? For Instance, in our case we have 4 creditors, out of which 3 creditors (holding 1.55% of total value) are in favour of scheme, however 1 creditor (holding 98.45 % of total value) will not give his consent neither will attend the meeting. Can we pass Scheme of amalgamation with 3/4 creditors having 1.55%/98.45% of total value?? Please reply.
ReplyDeleteIt is not possible to pass the Scheme of Amalgamation as it requires 90% or more of total outstanding amount as on appointed date.
ReplyDeleteThank you for taking the time to post this blog. I am pleased with your work after reading this post. This is very useful for us. Keep sharing such blogs. Andrew Barnett Fort Lauderdale
ReplyDelete