LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

WHAT IS DE FACTO MERGER? CAN ONE EXPLAIN BRIEFLY WITH EXAMPL

karan (student) (97 Points)

28 April 2011

WHAT IS DE FACTO MERGER? CAN ONE EXPLAIN BRIEFLY WITH EXAMPLE ?

Reply
Follow
Share

9 Replies

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114215 Points)
Replied 28 April 2011

De facto merger : A transaction that has the economic effect of a statutory merger but is cast in the form of an acquisition of assets or an acquisition of voting stock and is treated by acourt as if it were a statutory merger. Occurs where one corporation is absorbed by another, but without compliance with statutory requirements for a merger. Arnold Graphics Industries, Inc. v. Independent agent center, Inc., C.A.N.Y., 775 f. 2d 38,42.

karan (student) (97 Points)
Replied 28 April 2011

PLEASE DONT COPY AND PASTE FROM GOOGLE PLEASE EXPLAIN WHAT IS IT WITH SIMPLE EXAMPLE I DIDNT UNDERSTAND

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114215 Points)
Replied 28 April 2011

De Facto Merger Occurs where one corporation is absorbed by another, but without compliance with statutory requirements for a merger. It is an aquisition of assets.

What else you want be specific.....Where are you having problems in understanding, specify.

See the link below for details on Merger---

/articles/merger-and-amalgamation-an-overview-9561.asp

karan (student) (97 Points)
Replied 28 April 2011

At one hand one company absorbing another and loses one of the two company identity and that also without complying merger ? how does it differ from simple merger and amalgamation?when this kind of merger takes place?

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114215 Points)
Replied 28 April 2011

how does it differ from simple merger and amalgamation?

one corporation is absorbed by another, but without compliance with statutory requirements for a merger. For legal aspects of merger see sec 391 to 394 of CA, 1956.

For Ex. There should be scheme of compromise or arrangement for merger. But in case of De Facto Merger the company is acquired without and such scheme of arrangement. or Without complying with the requirement of 391-394.

when this kind of merger takes place?

Have not seen a case of Defacto Merger in India (Please some one correct me if i am wrong and give a example in Indian context.) Coz if not complied with statutory requirement they will loose certain taxation benifits and interest of all related parties can be affected. So there is no such situation as such when this kind of merger takes place.

karan (student) (97 Points)
Replied 29 April 2011

fist of all legal aspect of merger is governed by sec 390 to 396A and not only 391 to 394.you are only mentioning the court involvement merger and amlagmation and if any company merge without complying this provision is that not violation of provision?

karan (student) (97 Points)
Replied 29 April 2011

pls anyone clarify this topic

Anil Yuvraj Khatri (... ) (58 Points)
Replied 29 April 2011

>>>----- DE FACTO MERGER ----- >>>

With the de facto merger doctrine, some courts have held that the substance of a combination attempt determines whether statutory protections should be made available to shareholders. Thus, where an asset acquisition leads to the same result as a statutory merger, these jurisdictions demand that shareholders are given the same rights as in the statutory merger. See Farris v. Glen Alden Corp., 143 A.2d 25 (Pa. 1958).

Most courts, particularly in Delaware, have rejected the de facto merger doctrine and refuse to imply merger-type protection in these cases.See Hariton v. Arco Electronics, Inc., 182 A.2d 22 (Del. Ch. 1962), aff'd, 188 A.2d 123 (Del. 1963) (relying on the independent legal significance doctrine).

A de facto non-merger occurs when a corporate transaction results in a merger, but when that merger was effectuated using non-merger methods such as asset acquisitions and redemptions. See Rauch v. RCA Corp., 861 F.2d 29 (2nd Cir. 1988).

A shareholder might claim that a transaction was a de facto non-merger to argue that certain non-merger provisions in the company's articles of incorporation should apply (such as special redemption rights), especially when those provisions might be more favorable to the shareholder than default statutory merger protection provisions (such as appraisal rights).

Statutory protections generally provided for in statutory mergers include (a) board initiation and approval, (b) shareholder approval, (c) appraisal remedies.

A de facto non-merger is when the merger takes the form of a merger but in substance it is a non-merger. It is done to avoid some of the liabilities and responsibilities that go along with an asset sale or other non merger transactions. A shareholder will argue de facto non merger and claim that although the transaction took the form of a merger in actually the corporation wished to effectuate a transaction other than a merger and therefore the corporations owes the shareholders the rights they hold under those non merger requirements....!!!