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Merger and Amalgamation is a restructuring tool aiming to expand and diversify businesses for various reasons such as to gain competitive advantage, reduce costs or availing of tax benefits.
The merger is a combination of two or more entities into one, it is not just the accumulation of assets and liabilities of the distinct entities, but an organization of entity into one business. In carrying out the whole merger or amalgamation due diligence is the essential step, to begin the process.
Provisions in relation to different types of restructuring processes as follows:
- Compromise or arrangements under section 230 & 231of the Companies Act 2013;
- Amalgamation including demergers falls within section 232 of the Companies Act, 2013;
- The amalgamation of small companies within section 233 of the Companies Act, 2013;
- Amalgamation of foreign companies under section 234 of the Companies Act, 2013.
To verify the availability of companies’ power to amalgamate clause, memorandum of association of both the companies should be examined.
In the case of a listed company, the stock exchange of both the companies should be informed about the merger proposal.
BASIC TERMS OF MERGER & AMALGAMATION
In this, assets and liabilities of one company are transferred to another and the first company loses its existence.
In this, two or more companies merge into a third new company and the existing company loses its existence.
- Horizontal Merger
It is a merger occurring between companies producing similar products, goods and offering similar services.
- Vertical Merger
When two or more companies which are complementary to each other, join together.
- Conglomerate Merger
The merger between unrelated business.
- Reverse Merger
It is the opportunity for the unlisted companies to become the private limited company without opting for the initial public offer. In this process, the private company acquires the majority shares of the public company, with its own name.
In this, a single business is broken into components, either to operate on their own, to be sold or to be dissolved.
Under this, there is a re-organization of share capital, varying the rights of shareholders.
It includes all modes of reorganizing share capital.
REASON FOR MERGER & AMALGAMATION
- Expansion and Diversification
- Optimum Economic Benefit
- Risk Strategy
- Scaling up operations for competitive advantages
- Increase the Market capitalization
- Reducing overheads for cost reduction
- Increasing the efficiencies of operations
- Tax Benefits
- Access Foreign Markets
An application is required to be the file with Tribunal (NCLT). An application shall be made by both the transferor and the transferee company in the form of the petition to NCLT for the purpose of sanctioning the scheme of amalgamation. In the case where more than one company is involved then an application may be filed as a joint-application at the discretion of such companies.
In a case when a registered office of the Companies is in different states then there will be two tribunals having jurisdiction hence separate petition is required to be filed.
For amalgamation, companies should have the power in the object clause of their Memorandum of Association. The amalgamation scheme shall be drafted for the purpose of getting it approved at the Board meeting of the company.
- Format of Application
An Application is required to be filed with the tribunal for Merger & Amalgamation and this application will be submitted in form NCLT-1 along with following documents:
- Notice of admission in Form NCLT-2.
- Affidavit in form NCLT-6.
- Copy of Scheme of Compromise & Arrangement / Merger & Amalgamation.
- Following Disclosure in form of affidavit:
- Material facts relating to the company, such as
- Latest Information related to the financial position of the company.
- Latest auditor’s report of the company
- Information related to investigation or proceedings against the company
- Reduction of the share capital of the company.
- Consent of the secured creditors have been obtained by not less than 75% in relation to the scheme of Corporate Debt Restructuring
- Creditor’s Responsibility statement in form CAA-1.
- For the protection of secured and unsecured creditors, Safeguards.
- Auditor’s Report that the fund requirements of the company after the corporate debt restructuring is approved.
- The statement in relation to the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India.
- Valuation report by a registered valuer in respect of the shares, property, and assets, whether tangible and intangible/ movable and immovable/ of the company.
- It is required for an applicant to disclose to the tribunal, the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme in the application.
- Calling for Meeting by Tribunal
On the application, Tribunal shall unless it thinks necessary to dismiss the application, will provide such directions in respect of the meeting of the creditors or class of creditors, or of the members or class of members to be called or held and conducted in such manner as prescribed.
- Fix the time and place of the meeting.
- Appoint a Chairperson and scrutinizer for the meeting and fix the term for the appointment and remuneration;
- Fix the quorum and procedure to be followed at the meeting including voting in person or by proxy or by postal ballot or by voting through electronic means.
- Determine the values of the creditors or the members, whose meeting is required to be held.
- Notice to be given of the meeting with the advertisement of such notice.
- Notice to be given to authorities required under sub-section (5) of section 230.
- The time period within which the chairperson of the meeting is required to report the result of the meeting to the Tribunal.
Such other matters as the Tribunal may deem necessary.
- Notice of Meeting
Notice of the meeting after the order of the tribunal is required to be given in Form No. CAA-2. It is required to be sent to each Creditor/Member and debenture-holders at the registered address of the company.
A person authorized to send the notice
- Chairman of the Company.
- In case tribunal directs then either by the Company or its liquidator or by any other person.
Modes of Sending of notice
- Registered post, or by Speed post/ courier
- E-mail or by hand delivery
- By any other mode as directed by the tribunal
Following documents required to be sent along with the notice
It is required to send a notice of a meeting along with the Copy of Scheme of compromise & arrangement.
Following details of compromise & arrangement is required to be mentioned:
- All the required details of the Tribunal’s order regarding the calling, convening and conducting of the meeting:-
- Date of the Order;
- Date, time and place of the meeting
- Following Details of the company:
- Corporate Identification Number (CIN) / Global Location Number (GLN)
- Permanent Account Number (PAN);
- Name of the company;
- Date of incorporation;
- Type of the company (public or private or one person company);
- Registered office address of the company and e-mail address;
- Main object as per the memorandum of association.
- Details regarding the name change of the company registered office details and objects of the company during the last five years;
- Details of the stock exchange where securities of the company are listed;
- Details of the capital structure of the company such as authorized capital, issued capital, subscribed capital and paid up share capital;
- Names of the promoters and directors along with their addresses.
3.Combined Application can be made where the scheme of compromise or arrangement is related to more than one company then the details of the relationship between these companies which are parties to such scheme including holding, subsidiary or associate companies.
- Disclosure of the effect of Merger on the interests of directors, Key Managerial Personnel (KMP) and debenture trustees.
- Details of Board Meeting:
- Date on which the scheme was approved by the board meeting of the board of directors.
- Name of the directors voted in favor of the resolution.
- Name of the directors who voted against the resolution.
- Name of the directors who did not vote or participate in such resolution.
6.Explanatory Statement disclosing following details:
- Parties in the scheme of compromise or arrangement;
- Appointed date, effective date, share exchange ratio (if applicable);
- Summary of valuation report with the opinion of the registered valuer and the declaration that the valuation report is available for inspection at the registered office of the company;
- Capital details or details of debt restructuring;
- Rationale for the compromise or arrangement;
- Benefits of the compromise or arrangement as perceived by the Board of directors to the company, members, creditors, and others (as applicable);
- Amount due to unsecured creditors.
7.Disclosure regarding the effect of the Merger & Amalgamation on the following:
- Key Managerial Personnel;
- Non-Promoter Members;
- Debenture holders;
- Deposit trustee and debenture trustee;
8.A report on explaining the effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders adopted by the directors of the merging companies.
Following details required to be mentioned:
- Investigation or any proceedings pending against the company.
- Details of approvals, sanctions, and no-objection from regulatory authorities which is received or pending for the proposed scheme of compromise or arrangement.
- A statement in relation to the persons to whom the notice is sent may vote in the meeting either in person or by proxies or by voting through electronic means.
- A copy of the valuation report, if any.
- Details of availability of documents:
Details of the following documents for inspection by the members and creditors, namely
- Latest audited financial statements of the company (including consolidated financial statements).
- Copy of the order of Tribunal in relation to which the meeting is to be convened or has been dispensed with.
- Copy of scheme of Merger & Amalgamation;
- Contracts or agreements material to the Merger & Amalgamation;
- Certificate issued by Auditor of the company in relation to accounting treatment.
- Proposed scheme of Merger & Amalgamation must be in conformity with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013.
- Such other necessary information or document relevant for making the decision in favor or against the scheme.
The order made by the Tribunal for merging companies in respect of which a division is proposed, shall also be required to circulate the following:
- Drafting of the proposed terms of the scheme adopted by the directors of the merging company;
- Confirmation that a copy of the draft scheme has been filed with the Registrar of Companies;
- Valuation Report (if any)