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:
Notification No. S.O. 3677(E), Dated 7th December, 2016 (section become effective)
Notification No. S.O. 4090(E), Dated 19th December, 2016 (Delegation of Power)
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
“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.
Between whom the Compromise & Arrangement can propose: Section 233(1)
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
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