WHAT IS MERGER?
The very first step is to understand the meaning of merger. Merger implies a combination of two or more entities into one; the desired effect being not just the accumulation of assets and liabilities of the distinct entities, but organization of such entity into one business. A merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity. Mergers are most commonly done to gain market share, reduce costs of operations, expand to new territories, unite common products, grow revenues, and increase profits- all of which should benefit the firms' shareholders. After a merger, shares of the new company are distributed to existing shareholders of both original businesses.
Small businesses conduct mergers and acquisitions for the same reasons large corporations do - to strengthen positions in one or more markets, gain access to new markets, increase efficiency or just diversify a company's offerings. There are several types of merger strategies of particular interest to small businesses and each has something to offer depending on your company's goals.
WHAT IS FAST TRACK MERGER?
Fast Track Merger has been introduced with the intention of reducing the lengthy procedure of NCLT for the specified companies. These specified companies are either small companies or closely associated group companies like holding and wholly owned subsidiaries. These companies are small in nature and involve less scrutiny relatively.
Pursuant to provision of Section 233 of the Companies Act, 2013, a scheme of merger or amalgamation may be entered into between:
a) two or more small companies; or
b) a holding company and its wholly-owned subsidiary company; or
c) such other class or classes of companies as may be prescribed,
subject to following the prescribed procedure.
As per Companies Act, 2013, a Small company means a company, other than a public company, -
• paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
• turnover of which, as per profit and loss account for the immediately preceding financial year, does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Nothing has been prescribed yet under clause (c) mentioned above.
WHY TO GO FOR FAST TRACK MERGER?
The process of mergers and acquisitions in India is court driven, long drawn and hence problematic. The process may be initiated through common agreements between the two parties, but that is not sufficient to provide a legal cover to it. The sanction of the High Court is required for bringing it into effect. For the purpose, the Ministry has introduced Section 233 relating to merger of two or more small companies, holding and its wholly owned subsidiary company, or such other classes of companies as may be prescribed (till date Ministry has not prescribed any such companies). Following benefits can be availed via Section 233 i.e. Fast Track Merger:
1. No Mandatory approval of NCLT required.
2. No Need of Issuing Public Advertisement.
3. No Court Convened Meeting.
4. Less Administrative Burden.
5. Series of Hearing may be avoided.
6. Registration of scheme shall deemed to have effect of dissolution of transferor companies without the process of winding up.
7. Comparatively less cost.
WHAT IS THE PROCEDURE?
1. Check Articles of Association.
Companies intending to merge themselves should check their Articles of Association whether the company is authorized to go for a merger plan. If Not they need to alter their Articles of Association to give effect to the same.
2. Conduct Board Meeting for approval of merger scheme and Valuation Report.
Both the transferor and transferee company shall hold the Board Meeting for approving the draft scheme of merger and valuation report, if required.
It is important to understand that drafting of merger scheme is a very critical step. Scheme of the merger plan is a fundamental document which lays down the entire design and detailed procedure for merger of the companies.
Valuation Report is required for calculating the share exchange ratio on the basis of which new equity shares are allotted to the existing shareholders. The same is required to be taken for consideration in the Meeting of Board of Directors.
3. Filing of Scheme.
Both the transferor and transferee companies shall file the draft scheme proposing the merger with the
(i) ROC where the registered office of respective companies are situated;
(ii) Official Liquidator; and
(iii) any persons affected by the scheme
4. Objections and Suggestions.
The Objections and Suggestions shall be sent by the Registrar and Official Liquidator and person affected by the scheme to companies involved in merger within 30 days from date of notice.
5. Filing Declaration of Solvency.
Pursuant to the provision of section 233(1)(c ) of Companies act, 2013 read with Rule 25(2) of The Companies(Compromises, Arrangements and Amalgamation) Rules, 2016, each company involved in the merger shall file their respective declaration of solvency statement in Form CAA-10 with ROC.
6. Convening General Meeting of Members or Class of Members.
Pursuant to the provisions of section 233(1)(b) of the Act read with rule 25(3), both the companies shall obtain approval of members holding at least 90% of total no. of shares for the scheme. The Objections and suggestion received by ROC and OL shall also be considered by the companies in their respective general meeting.
7. Convening Meeting of Creditors or Class of Creditor.
Pursuant to the provision of section 233(1)(d) of Act read with rule 25(3), the companies shall obtain the approval of their creditors in any of the below mentioned manner:
(i) By Meeting: Such scheme shall also be approved by the majority representing 9/10th value of creditors or class of creditors of the respective companies.
(ii) Without Meeting: Such scheme shall also be approved in writing by the majority representing 9/10th value of creditors or class of creditors of the respective companies.
8. Filing Copy of Scheme and Results of Meeting with Regional Director.
Pursuant to the provisions of Rule 25(4), the transferee company, within 7 days of conclusion of meeting of members or class of members or creditors or class of creditors shall require to file with Regional Director in Form CAA-11 the following documents:
(i) Copy of scheme as agreed to by members and creditors; and
(ii) Report of Results of each of the meetings.
Copy of Scheme along with the above mentioned form CAA-11 shall also be filed by Transferee Company with:
(i) The ROC in Form GNL-1 along with the prescribed fees Companies (Registration Offices and Fees) Rules, 2014; and
(ii) The Official Liquidator through hand delivery or by registered post or speed post.
9. Approval of Scheme by the Regional Director
Registrar of Companies and Official Liquidator may give objections or suggestions if any to the Regional director within 30 days of the receipt of the scheme. However where no objections or suggestions have been made, it shall be presumed that they have no objection to the scheme.
Where no objections or suggestions to the scheme are received from Registrar of Companies and Official Liquidator and Regional director is in opinion that scheme is in public interest or in the interest of creditors, the RD shall issue confirmation order in Form CAA-12 which shall be deemed to be the order of sanction the scheme of merger.
On the basis of Objections or suggestions made by ROC and OL or otherwise, RD is of opinion that scheme is not in public interest, it may file application before Tribunal in Form CAA-13 within 60 days of receipt of the scheme and requesting Tribunal may consider the scheme under section 232 of the Act.
10. Filing of Order.
Order of RD approving the scheme shall be filed in E Form INC-28 with the ROC within 30 days having jurisdiction over the transferee and transferor company.
DISCLAIMER: THE ENTIRE CONTENTS OF THIS DOCUMENT HAVE BEEN PREPARED ON THE BASIS OF RELEVANT PROVISIONS. THE INFORMATION STATED ABOVE IS NOT A PROFESSIONAL ADVICE OR LEGAL OPINION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM THE USE OF THE INFORMATION.
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