One of the most preferred tools of corporate restructuring is mergers & acquisitions. This tool helps companies in the expansion and diversification of their business to achieve the objectives set by the management while establishing a business. The merger means an arrangement where one or more existing companies come together to make one new entity and set a few objectives together.
Unlike the Companies Act, 1956, the term “Merger” is not strictly defined in the Companies Act, 2013 also. Section 230-234 of the Act deals with Compromise, Arrangements, and Amalgamations, out of which section 233 of Act read with rule 25 of Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 (for brevity “Merger Rules”) deals with merger or amalgamation between (i) Small Companies or (ii) Holding company & its wholly-owned Subsidiary Company (for brevity “specified class of companies”).
Under section 233 companies act merger or amalgamation is popularly known as “Fast track merger”.
Provisions of fast track merger;
Under section 233 of the companies Act 2013, disposes of mergers with a cumbersome and time-consuming process and outlines a simple, fast track merger approach for mergers of certain companies such as holding and subsidiary companies and small companies.
Applicability of the fast track merger;
As per provisions of Section 233 of Companies Act, mergers and acquisitions can enter into the following two fast track route;
- Two or more Small Companies as defined under section 2(85) of Act; or
- Holding Company and its wholly-owned subsidiary company.
As per companies act, Small Company means a company, which meets the following criteria simultaneously:
- Not a public company
- Having paid-up share capital not exceeding INR 50 lakh
- Having turnover not exceeding INR 2 crore
Procedural aspects of fast track merger;
- Convene board meeting
- To approve the draft
- To fix a date, time and place for a shareholders meeting
- To fix the date, time and place for the creditors meeting
- Notice of proposed scheme
After the approval of directors of each company the notice of the proposed scheme should be sent by the register of companies act and official liquidators by each transferor and transferee company in form CAA-9.
- File declaration of solvency with ROC
Both the transferee and the transferor involved in the merger must file a declaration of solvency in form CAA-10 with the registered companies.
- EGM notice
The notice of the meeting is required to be sent to the members and shall contain;
Copy of proposed scheme
Statement of details of the merger
Solvency declaration statement
Copy of latest audit report
Copy of valuation report
Relevant information if any.
- Approval by members
The scheme must be approved by the respective members at the general meeting holding 90% of the total shares.
- Approval by creditors
The transfer and transferee company are required to take approval from creditors.
- Scheme filing
A copy of the scheme & report of the result each of each meeting along with form CAA11 shall be filed with the concerned registered companies.
- Approval of scheme by R.D
The regional director shall register the scheme if the ROC and the official liquidator has no objections or suggestions to the scheme and then issue the confirmation thereof.
- File confirmation order with ROC
The scheme copy order confirmed by the RD shall be filled with the ROC within 30 days.