MERGER OR AMALGAMATION

We will discuss merger and amalgamation in this post

MERGER AND AMALGAMATION (SECTION 232):

The Tribunal, Merger, amalgamation or demerger is proposed in the application of compromise and arrangement under Section 230 (i) of the company, or (ii) of the creditors, or (iii) of the members of the company (iv) of the liquidator of company under liquidation, may order the meeting (A) Creditors or class of creditors, or (B) of the members or class of members, (x) to be called, (y) held and (z) conducted in the manner directed by the Tribunal.

Notice of the Meeting:

The notice for a meeting called in pursuance of an order of the Tribunal, shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture – holders of the company. The notice shall be send individually at the registered address with the company. The notice shall be accompanied by –

(a)  a statement disclosing the details of the compromise or arrangement;

(b) a copy of valuation report, if any;

(c)  explaining effect of the scheme on the creditors, key managerial personnel, promoters and non – promoters members and debenture – holders;

(d)  explaining effect of the scheme on any material interests of the directors of the company or the debenture trustees; and

(e)  such other prescribed matters.

In addition to the above, the companies merging or demerging, shall also circulate –

(f)   the draft of the terms of scheme drawn up and adopted byt eh directors of the merging company;

(g)  confirmation that the copy of the draft scheme has been filed with the Registrar;

(h)  a report adopted by the directors of the merging companies effect of the scheme on each class of share holders, key managerial personnel, promoters and non – promoters shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;

(i)   the report of the expert with regards to valuation, if any;

(j)   a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.

The notice shall also be placed on the website of the company. In case of a listed company, the notice shall also be sent to the Securities and Exchange Boards of India and stock exchanges for placing on their web – site. The Notice shall also be published in newspapers.

Any advertisement of or about the notice, shall indicate the time within which compromise or arrangement shall be made available to concerned person free of charge from the registered office of the company.

The notice shall provide that the person to whom the notice is sent, may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of the notice.

A notice along with all the documents shall also be sent to –

(a)  The Central Government;

(b) The Income – tax authorities;

(c)  The Reserve Bank of India;

(d)  The Securities and Exchange Board of India;

(e)  The Registrar;

(f)   The stock exchanges;

(g)  The Official Liquidator;

(h)  The Competition Commission of India, is necessary; and

(i)   Such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement (I hope, this means something which may falls in whose sectoral territory is going to be affected).

These authorities shall require to made representation within a period of thirty days from the date of such notice. If these authorities fail to represent within this period, it is presumed that they have no representations to make on the proposals.

Objection to the Compromise or Arrangement:

Any Objection to the compromise or arrangement shall be made only by person holding not less than ten percent of the shareholdings or having outstanding debt amounting to not less than five percent of the total outstanding debt as per the latest audited financial statement.

This means all other person has only two option: yes or no.

Effect of the Scheme:

Where (i) majority of persons representing three – fourth in value of the creditors or class of creditors or members or class of members agree to compromise or arrangement and (ii) sanctioned by the Tribunal by an order; the scheme shall be binding on the company; all creditors or class of creditors or members or class of members or in case of a company being wound up, on the liquidator and the contributories of the company.

The Order:

The Tribunal may, by order, sanction the compromise or arrangement or may make provision for the following matters –

(a)  The transfer to the transferee company of the whole or any part of undertaking, property or liability of the transferor;

(b) The allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company;

The company shall not hold any share in its own name or in the name of any trust in ist behalf or on behalf of any of its subsidiary or associate companies and any such shall be cancelled or extinguished;

(c)  The continuation by or against the transferee company of any legal proceedings pending by or against any transferor company on date of transfer;

(d)  Dissolution, without winding – up, of any transferor company;

(e)  The provision to be made for any person who dissent from the compromise or arrangement;

(f)   Where share capital held by non – resident shareholders under foreign direct investment norms or guidelines, the allotment of shares of the transferee company to such shareholders shall be in manner specified in the order;

(g)  The transfer of the employees of the transferor company to the transferee company to transferee company;

(h)  Where the transferor is listed company and the transferee company is unlisted company –

1. The transferee company shall remain un unlisted company until it become an listed company;
2. If shareholders of the transferor company decide to opt out of the transferee company, provision for payment of the value of shares held by them and other benefits in accordance with pre –determined price formula or after valuation is made, and the arrangements may be made by the Tribunal. \

The valuation shall not be less than the valuation in accordance with SEBI regulations.

(i)   Where the transferor company is dissolved, the fee paid by the transferor company on its authorised capital shall be set – off against any fee payable by the transferee company on its authorised capital subsequent to the amalgamation; and

(j)   Such incidental, consequential and supplemental matters as deemed necessary.

No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor has been filed with the Tribunal that the accounting treatment proposed in the scheme compromise or arrangement is in conformity with the accounting standards.

Property free from charge:

Where an order provide for the transfer of any property of any property or liabilities shall be transferred to and become the liabilities of the transferee company and any property may be freed from any charge which shall be virtue of the compromise or arrangement cease to have effect.

Filing with the Registrar:

Every company in relation to which the order is made shall cause a certified copy of the order to be file with the Registrar from registration within thirty days of the receipt of certified order.

Effective Date:

The scheme shall clearly indicate an appointed date from which it shall be effective and shall be deemed to be effective from such date.

Annual Statement on Scheme:

Every company, in relation to which the order is made, shall file a statement with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with. The statement shall be filed annually until the completion of the scheme.

Penalty:

If a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.

 

MERGER AND AMALGAMATION OF CERTAIN COMPANIES (SECTION 233):

This is a merger and amalgamation other than under scheme of merger and amalgamation.

The 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 subject to the following, namely –

(a)  A notice of the proposed scheme inviting objection or suggestions from the Registrar and Official Liquidators or persons affected by the scheme within thirty days is issues by the transferor company;

(b) The objections and suggestions received are considered by each company in its general meeting and the scheme is approved by the members holding at least ninety percent of total number of shares in respective general meeting;

(c)  Each company involved shall file a declaration of solvency with the Registrar;

(d)  The scheme is approved by majority representing nine – tenth in value of creditors or class of creditors of each company in a meeting convened by the company by giving a notice of twenty – one days along with scheme. Creditors may also approved the scheme in writing.

Filing with Registrar and Official Liquidator:

The transferee company shall file a copy of approved scheme with the Central Government, the Registrar and the Official Liquidator.

If the Registrar or the Official Liquidator has no objection or suggestions to the scheme, tje Central Government shall register the same and issue a confirmation thereof. Here, the Central government act as registrar not the Registrar.

If, the Registrar or the Official Liquidator has any objections or suggestions, he may communicate the same in writing to the Central Government within thirty days. Where, the Registrar or the Official Liquidator make no communication, it shall be presumed that he has no objection to the scheme.

Application to Tribunal:

If the Central Government after receiving the objections or suggestion or for any reason is of the opinion that the scheme is not in public interest or in interest of creditor, the Central Government may file an application before the Tribunal within a period of sixty days ot he receipt of the scheme stating is objection. The Central government shall request the Tribunal that the Tribunal may consider the scheme under section 232.

On such application, the Tribunal any direct that the scheme should be considered as per the procedure lay down under Section 232 or may confirm the scheme by passing and order as it deemed fit.

The Registration of Order and its Effect:

A copy of the order confirming the scheme shall be communicated to the Registrar having jurisdiction over Transferee Company and the persons concerned. The Registrar shall register the scheme and issue a confirmation. The Registrar shall also communicate the scheme to Registrars where transferor companies were situated.

The registration of the scheme shall have effect of dissolution of the transferor company without process of winding – up.

The registration of scheme shall also have effects –

(a)  Transfer of property or liabilities of the transferor company to the transferee company;

(b) The charges on the property of the transferor company shall be applicable and enforceable against the transferee company;

(c)  Legal proceedings by or against the transferor company pending before any court of law shall be continued by or against the transferee company; and

(d)  Where the scheme provide 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.

Revised Authorised Capital:

The transferee company shall file an application with the Registrar along with the scheme registered indicating the revised authorised capital and pay fee o revised capital. The fee paid by transferor company on its authorised capital prior to its merger or amalgamation with transferee company shall be set off against the fees payable the transferee company on revised capital.

A company covered under Section 233 may use provision of section 232 for the approval of any scheme for merger or amalgamation.

 

MERGER OR AMALGAMATION OF A COMPANY WITH FOREIGN COMPANY (SECTION 234):

The provision of this chapter shall also apply to the scheme of mergers and amalgamations between companies registered under the Companies Act, 2013 and companies incorporated in the jurisdictions of such countries as may be notified.

This notification is a precondition of cross country merger and amalgamation.

The Central Government may make rules in connection with mergers and amalgamations.

With prior approval of the Reserve Bank of India, a foreign company may merge into an Indian company or an Indian company may merge into a foreign company.

The terms and conditions may provide for payment of consideration to the shareholders of the merging company in cash or in Depository, or both.

A foreign company means a company or body corporate outside Indian nehether having a place of business in India or not.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.

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• COMPROMISE AND ARRANGEMENT (Companies Act, 2013): (aishmghrana.me)