Fast Track Merger- faster way corporate restructuring BarshaDikshit barsha@vinodkothari.com and Rahul Maharshi Corporate Law Services Group corplaw@vinodkothari.com 12 th January, 2017 Check at: http://india-financing.com/staff-publications.html for more write ups. Copyright: This document is the property Vinod Kothari & Company and no part it can be copied, reproduced or distributed in any manner. Disclaimer: This document is intended to initiate academic debate on a pertinent question. It is not intended to be a pressional advice and should not be relied upon for real life facts.
Introduction The Ministry Corporate affairs ( MCA ) vide its commencement notification dated 7 th December, 2016, 1 has notified various sections the Companies Act, 2013 ( Act, 2013 ) to come into force w.e.f. 15 th December, 2016. By virtue the said notification, the much awaited section, section 233 the Act, 2013 dealing with Merger and amalgamation certain types companies, has also came into force whereby a scheme 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 companies as may be prescribed without following the cumbersome restructuring proceedings. There was no such concept under the Companies Act, 1956 and therefore all the mergers and restructurings had to go through with the lengthy proceedings as any other mergers. Now, under fast track merger, Central Government (the power has been delegated to the Regional Director) has the power to approve such scheme and there is no need to approach to the National Company Law Tribunal ( NCLT ). Further, on the very date enforcement the said sections, MCA has also introduced the Companies (Compromise, arrangements and amalgamations) Rules, 2016 ( CAA Rules 2 ) dealing with the manner making application for the Corporate restructuring. Section 233 the Act, 2013 and rule 25 the CAA Rules provide for the entire framework the fast track merger. In this write up, we have made an attempt to analyse the proceedings for Fast Track Merger. Companies eligible to make application under Fast Track Merger: The scheme merger or amalgamation may be entered into: between two or more small companies or between a holding company and its wholly-owned subsidiary company such other class or classes companies as may be prescribed. (please note that other classes companies has not yet been prescribed) Benefits Fast track merger The benefits Fast track merger over the Traditional merger can be envisaged as follows: 1. Reduction in Administrative burden; 2. Reduction in time involved via Traditional Merger; 3. Reduction in cost for smaller companies falling below threshold limits; 1 http://www.mca.gov.in/ministry/pdf/commencementnotif_08122016.pdf 2 http://www.mca.gov.in/ministry/pdf/compromisesrules2016_15122016.pdf
4. No Mandatory approval the NCLT required; 5. Registration scheme shall be deemed to have effect dissolution transferor companies without the process winding up. Whether listed companies can also opt for the Fast Track Merger? Yes. Listed companies that fulfills the criteria as mentioned in section 233 (1) can also opt for the FTM mode. However, till the time SEBI comes up with the process to be followed by the listed companies in line with the provision Companies Act, 2013, listed companies shall have to follow the SEBI s circular dated November 30, 2015 and LODR Regulations. Approval Required for Fast Track Merger In terms section 233 (2) and (3) the Act, 2013, the Transferee Company is required to file the scheme, after the same is approved by the shareholder and creditors, with the following authorities as relevant for jurisdiction the registered fice the Company: The Central Government (power has been delegated to the Regional Director); The Registrar Companies; and The Official liquidator Can the classes companies eligible to opt for Fast Track Merger, adopt Traditional Merger route for approval for merger? Yes, the classes companies eligible to opt for Fast Track Merger may, at its own discretion, opt for Traditional Merger route as per the provisions section 233 (14) the Act and rule 25 (8) the Compromise Rules. Dissolution Transferor Companies under Fast Track Route: As per the provisions sub-section (8) section 233 the Act, transferor company shall be deemed to be dissolved without meeting the process winding up once the scheme is registered pursuant to the registration and issuance a confirmation by the Regional Director under sub-section (3) the Act or pursuant to the registration the scheme by Registrar having jurisdiction over the transferee company Stamp Duty applicability on Fast Track Merger Stamp Duty is a State subject and its applicability is determined on two grounds: a) the State (s) where the Registered Office the company is situated and b) the status the properties being transferred under the Scheme. Further, as per Schedule 1 the Indian Stamp Act, 1899, every instrument, whether movable or immovable, for transfer property, attracts
Stamp duty. Thus, in order to create a valid charge for levy stamp duty on conveyance, the following ingredients must exist; i) there should be instrument transfer, ii) the properties, whether movable or immovable, should be transferred inter-vivos between Parties. Government Maharashtra, Gujrat, Chattisgarh, Karnataka, Madhaya Pradesh, Andhra Pradesh, West Bengal and Uttar Pradesh have included the order passed on mergers in the definition Conveyance. Hence stamp duty is applicable on mergers. Further, It is only where a property is involved and when the transferee intends to transfer the same in its name comes the question registration and therefore, payment duty arises at that stage. In case where a property may not be situated in the state passing order on merger, the stamp schedule the relevant State has to be seen if duty is applicable on immoveable property registration in that state where the property is located. Traditional Merger vs Fast Track Merger Particulars Traditional merger Fast track merger Manner making application Section 230 (1) and rule 3 has provided Form No. NCLT-1 for making application along with an affidavit verifying petition in Form NCLT-2, copy scheme and prescribed fees before the NCLT. The provisions Section 233 does not require any application to be made to the NCLT. Approving Authorities Shareholders the Company; Creditors the company; All the statutory authorities as may be applicable, such as RBI, RD, CCI, Stock Exchange, SEBI ; and Approval the NCLT Shareholders the Company; Creditors the Company; Registrar companies; Official Liquidator; Regional Director
Dispensation the meeting from If 90% by value creditors/members agree by way affidavit then meeting creditors/members can be dispensed with by the NCLT No need to take dispensation from the NCLT convened meeting. Requirement declaration solvency Requirement valuation Report Lengthy Proceeding Dissolution Transferor Company NCLT No Declaration solvency Required Valuation report by an independent merchant banker registered with SEBI or by a Practicing Chartered Accountant having a minimum experience 10 years is required. Companies involve in the scheme merger shall have to follow the procedure as per NCLT rules such as making application, hearing before NCLT, filing petition, advertisement merger etc. NCLT, after satisfying that procedure specified in Section 232 has been complied with, may by order make provision for dissolution transferor company without winding up. Declaration solvency is a prerequisite. Both the companies involved in the scheme merger shall file declaration solvency in Form CAA. 10 before convening meeting members for approval the scheme. No valuation report is required. No need to follow lengthy NCLT proceedings Registration the scheme with the Registrar shall be deemed to have effect dissolution the transferor company without process winding up. Procedural compliances in detail Power to Amalgamate It must be ensured that the companies under amalgamation should have power in the object clause their Memorandum Association to amalgamate though this may not be an impediment, but this will make the matter smooth. Also if the transferee company
intends to carry on the business the transferor company, it must have the object clause amended as per the MoA the Transferor Company. Board meeting for approval the scheme A draft scheme amalgamation shall be prepared for getting it approved in the Board meeting each company. A Board meeting shall be convened to pass the necessary resolutions for approving the scheme and to authorize someone to do all acts and things as may be considered necessary and expedient in relation thereto. Submission notice inviting objections or suggestions A notice the proposed scheme inviting objections or suggestions, if any, from the Registrar (where the registered fice the transferor/transferee company is situated) and Official Liquidator the area where the registered fice the transferor company is situated or persons affected by the scheme shall be sent to them in form CAA.9 enclosed with a copy the scheme by the companies involved in the merger. The objections and suggestions shall be sent by the Registrar and Official Liquidator and persons affected by the scheme to the Regional Director and to companies involved in the merger within 30 days from the date the notice. Filing Declaration solvency Each the companies involved in the merger files a declaration solvency in form CAA.10 along with the fees prescribed under the Companies (Registration Office and Fees) Rules, 2014with the Registrar where the registered fices the companies are situated before convening the meeting members or creditors for approval the scheme. Convening General meeting members or class members The notice the meeting shall be accompanied by: (a) A Statement disclosing the details the compromise or arrangement pursuant to sub-section (3) section 230 the act read with sub-rule (3) rule 6, if such details are not already included in the said scheme; (b) A copy the scheme; (c) The declaration solvency made in pursuance clause (c) subsection (1) section 233 the Act in form CAA.10 The objections and suggestions received from the Registrar, Official liquidator and persons affected by the scheme shall be considered by the companies in their respective general meetings The scheme shall be approved by the respective members or class members holding at least ninety percent the total number shares.
The notice shall provide that the persons to whom the notice is sent may vote in the meeting either by themselves or through proxies or by Postal Ballot to the adoption the scheme within one month from the date receipt such notice. Convening meeting creditors or class creditors The notice the meeting shall be given 21 days prior to the date meeting accompanied by: (a) A Statement as far as applicable, referred to in sub-section (3) section 230 the act read with sub-rule (3) rule 6 here in relation to details which are not included in the scheme; (b) A copy the scheme; (c) The declaration solvency made in pursuance clause (c) subsection (1) section 233 the Act in form CAA.10 The objections and suggestions received from the Registrar, Official liquidator and persons affected by the scheme shall be considered by the companies The scheme shall be approved by the majority representing nine-tenths in value the creditors or class creditors the respective companies. Filing Draft Scheme with Stock Exchanges In case a listed company involved in the merger, shall file the draft scheme with the stock exchange prior to filing the scheme with the court or tribunal under section 230-234 the Companies Act, 2013. A no objection certificate from stock exchange shall be obtained and the same shall be submitted with the Regional Director, accompanied with the scheme. Filing copy scheme and results the meeting with the Regional Director The Transferee company, within 7 days conclusion the meeting members or class members or creditors or class creditors, shall be required to file with the Regional Director in form CAA.11 the following documents: (a) copy scheme as agreed to by members and creditors; and (b) a report the results each the meetings Copy scheme along with the above mentioned form CAA.11 shall also be filed by the transferee company with : (a) The Registrar companies in form GNL-1 along with the prescribed fees Companies (registration fices and fees) Rules,2014; and (b) The ficial liquidator through hand delivery or by registered post or speed post. Approval scheme by the Regional Director (Power has been delegated to the Regional Director vide notification dated 19 th December, 2016) Where no objections and/or suggestions to the scheme are received from the Registrar Companies and the Official Liquidator or person affected by the
scheme or the objections/suggestions are not substantial to the opinion the Regional Director and the Regional Director is the opinion that the scheme is in public interest or in the interest the creditors the RD shall issue a confirmation order such scheme merger or amalgamation in form CAA.12 which shall be deemed to be the order sanctioning the scheme Merger. In case, the Regional Director is the opinion on such objections and/or suggestions or otherwise, that the scheme is not in public interest or in the interest creditors,regional Director may file an application before the tribunal in form no CAA.13 within 60 days receipt the objections and/or suggestions for consideration the scheme under section 232 the Act. Deemed winding up transferor company The registration the scheme by approval under sub-section (3) section 233 the Act or an approval by filing copy confirmation order with the Registrar under sub-section (7) section 233 the Act shall be deemed to have effect dissolution the Transferor company without the process Winding-up Effects registration the scheme The registration the scheme shall have the following effects, namely:- o o o o Transfer properties or liabilities the transferor company to the transferee company so that the property becomes the property the transferee company and the liabilities become the liabilities the transferee company; the charges, if any, on the property the transferor company shall be applicable and enforceable as if the charges were on the property the transferee company; legal proceedings by or against the transferor company pending before any court law shall be continued by or against the transferee company; and where the scheme provides for purchase shares held by the dissenting shareholders or settlement debt due to dissenting creditors, such amount, to the extent it is unpaid, shall become the liability the transferee company.
Fast Track Merger at a glance: Practical aspects Fast Track Merger: Sr. Activity No. 1. Check the MoA the Company 1. Amalgamation is permissible as per object clause Memorandum Association both the Companies. (the object clause MoA transferee company may be amended in case transferor company intends to carry on the business transferor company) Section/ Rules Relevant Forms Tentative Timeline
2. Appointed date to be decided by the BOD on mutual consent 3. Drafting the Scheme Amalgamation 4. Sent notice the Board meeting (at least 7 days before the date the meeting) 5. Conduct a Board Meeting to consider the following : Scheme Amalgamation; To take declaration solvency from the directors the Company in Form CAA 10; To approve fix date, time the general meeting; To authorize someone to do all acts and things as may be considered necessary and expedient in relation thereto. 6. Filing Notice proposed scheme with Registrar, Official Liquidator or persons affected by the scheme inviting objections & suggestions. 7. Dispatch notice the general meeting to the members class them and the same shall be accompanied with: a. Scheme Amalgamation, b. Statement under Section 230 the Companies Act, 2013, c. Declaration solvency made in pursuance clause (c) subsection (1) section 233 233(1)(a) CA,2013 233(1)(d) CA,2013 and Rule 25 93) CAA.9 Say on x day x+7 day x+8 day x+8 day (atleast 21 days before the date the General Meeting) 8. Simultaneously, File Declaration solvency alongwith the fee as prescribed in the Rules by each company involved in the scheme merger or amalgamation 9. MGT-14 should be filed with ROC for Board resolution (within 30 days passing the board resolution) 233(1)(c) CA,2013 and Rule 25 (2) CAA.10 x+10 day Within x+7+30 day
10. Take NOC from the Creditors the Company on the scheme amalgamation (the scheme shall be approved by the majority creditors representing 9/10 th the value ) 11. Receipt objections & suggestions, if any, from the Registrar, Official Liquidator or person affected by the scheme (within 30 days from the date filing notice) 12. Hold general meeting to consider the following: To get the scheme approved by the members holding atleast 90% the total number shares; To consider the suggestions received by the Registrar, OL, if any; To take note the NOC received from the creditors. 13. Transferee company shall file a copy the scheme as agreed to by the members and creditors the respective companies, along with a report the results each the meetings with the Regional director (RD) in Form CAA.11, Registrar Companies in Form GNL-2 and Official Liquidator (OL)through hand delivery or speed post the region where the registered fice the company is situated. 14. Regional Director shall issue a Confirmation order for approval the Scheme.(if no objection from Registrar or ficial liquidator received. 15. The Confirmation order the Regional Director shall be filed with the ROC by transferor and transferee company alongwith prescribed fees Section 233 (1) (a) Section 233 (1) (b) and (d) Rule 25 (4) 233(2) CA,2013 Rule 25 (7) CAA.11, GNL-1 CAA. 12 INC-28 Requisite time Within x+8+30 day x+8+31 day Within x+8+31+7 day Say within x+8+31+7+10 day Within x+8+31+7+10+3 0 day
Conclusion The concept fast track merger is a right move towards simplifying the procedural aspect Merger and amalgamations small companies and holding company with its wholly owned subsidiary. As compared to the traditional merger process where NCLT approval is required, the process Fast track merger is lesser time consuming and needs lesser costs or paper works. However, the likely time for the process fast track merger will depend upon the authorities concerned for the timely disposal matters. To read our other resources click here