Brief: The following article explains the provisions of Fast Track Mergers, its advantages, steps involved & details of forms need to be filed for a fast-track merger.
1. APPLICABLE PROVISIONS UNDER COMPANIES ACT, 2013:
i. Section 233 of the Companies Act, 2013
ii. Rule 25 of TheCompanies (Compromises, Arrangements, and Amalgamations) Rules, 2016
2. WHAT IS A FAST-TRACK MERGER?
Under the previous Companies Act of 1956, all the mergers and restructurings had to go through lengthy proceedings where the intervention of the High Court was mandatory. Having the judiciary involved in the dynamic world of corporate law made the process of mergers time-consuming and costly.
Section 233 of the Companies Act 2013 lays down a simple, fast-track merger procedure where certain companies like holding and subsidiary companies, and small companies can carry out the procedure of amalgamation and merger in a shorter time.
3. FAST TRACK MERGER CAN BE PROPOSED BETWEEN:
i. A Holding Company and its wholly-owned subsidiary company*;
ii. Two or more small companies**;
iii. Such other class or classes of companies as may be prescribed.
* the wholly-owned subsidiary company can be Private/Public/Section 8 Company;
**Small Company means a company, other than a public company, whose —
i. paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees;
ii. turnover of which (as per P&L account for the immediately preceding financial year), does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
Provided that nothing in this clause shall apply to—
a) a Holding Company or a Subsidiary Company;
b) a Company registered under Section 8; or
c) a Company or a Body Corporate governed by any Special Act;
4. ADVANTAGES OF FAST TRACK MERGER:
i. No requirement of NCLT approval;
ii. Increased ease of doing business;
iii. Reduced costs;
iv. Less regulatory requirements need to be followed now;
v. No need of issuing public advertisement which previously used to lengthen the process of mergers;
vi. Less administrative burden on the Merging Companies;
vii. Once the Companies have registered for a Merger scheme, the transferor company shall be deemed be dissolved without it going through the separate process of winding up;
viii. Time-saving, especially for small & medium-sized companies.
5. STEPS INVOLVED IN FAST TRACK MERGER:
I. AUTHORISATION IN THE ARTICLES OF ASSOCIATION:
Articles of Association of both transferor and transferee company should authorize the merger. If such is not the case then the Articles of Association needs to be altered first.
II. APPROVAL OF THE BOARD FOR THE MERGER SCHEME:
Both transferor and transferee company need to prepare the draft scheme for Merger and the same should be approved by the members of the Board.
III. SUBMISSION OF NOTICE INVITING OBJECTIONS OR SUGGESTIONS:
Both transferor company and transferee company shall send the notice of proposed scheme in form CAA-9 to invite the objections and suggestions on the scheme. This notice in form CAA-9 is sent to the:
a. The objections/suggestions should be sent within 30 days from the Date of Notice.
b. The notice inviting objection from ROCs in Form CAA 9 is to be filed in E-Form GNL-1.
IV. FILING OF DECLARATION OF SOLVENCY:
Each Company that is participating in the Merger scheme is required to file their respective Declaration of Solvency Statement (Form CAA-10) with the ROC and the OL (Section 233(1)(c) read with Rule 25(2)).
The Declaration of Solvency in Form CAA 10 is be to filed with the ROC physically.
V. CONVENING OF GENERAL MEETING:
Both the Companies will consider the objections/suggestions received (if any) and shall also obtain the approval of members who are holding at least ninety per cent of the total number of shares.
VI. CONVENING THE MEETING OF THE CREDITORS:
The companies must obtain the approval of the Creditors and thus, they shall hold a meeting for the same where they will call upon all their respective creditors and obtain their permission to move ahead with the Merger:
With meeting: scheme shall be approved by the majority representing 9/10th value of Creditors or class of Creditors of the respective Companies.
Without Meeting: Such scheme shall be approved in writing by the majority representing 9/10th value of Creditors or class of Creditors of the respective Companies.
a. The notice for convening the meeting for Creditors and members meeting shall be given 21 clear days before commencement of meeting;
b. The Notice of the Meeting shall be accompanied by the following documents:
VII. FILING OF COPY OF THE SCHEME AND RESULTS WITH REGIONAL DIRECTOR (RD):
Once the meeting is completed, both the Companies need to file the following details with the Regional Director:
a. Approved scheme along with the results of the Members and Creditors meeting (in form CAA-11) within 7 days from the date of the conclusion of the meeting with the RD (Regional Director);
b. The approved scheme needs to be filed with the ROC in form GNL-1. The form GNL-1 needs to be accompanied by the form CAA-11 filed with RD;
c. Copy of the scheme and CAA-11 shall also be delivered to the Official Liquidator.
The Registrar and Official Liquidator shall communicate the objections/suggestions, if any, regarding the Merger scheme within a period of 30 days. If such communication is not received within the stipulated time, it shall be presumed that there is no objection to the scheme.
VIII. APPROVAL OF THE SCHEME:
If the Regional Director is of the opinion that the –
i. proposed Merger scheme is in Public Interest or is of interest to the Creditors, and;
ii. scheme does not receive any objections/suggestions from the ROC or from the Official Liquidator, then
RD will approve the scheme.
If the Regional Director after receiving the objections or suggestions or for any reason is of the opinion that such a scheme is not in the public interest or in the interest of the creditors, he/she may file an application before the Tribunal within a period of sixty days of the receipt of the scheme under sub-section (2) of section 232 stating its objections and requesting that the Tribunal may consider the scheme likewise.
IX. FILING OF APPROVED SCHEME WITH ROC
The Order from the RD, approving the Merger scheme, must be filed with the ROC in form INC-28 within 30 days from the date of receipt of the order.
PHYSICAL FORMS THAT NEED TO BE FILED WHILE PROCEEDING WITH FAST-TRACK MERGERS
|S.NO||NAME OF THE FORM||BY||PARTICULARS||PROVISIONS|
|1.||CAA-9||Transferor & Transferee Company||Notice of scheme inviting the objection/suggestion.
|Sec 233 (1)(a) r/w 25(1)|
|2.||CAA-10||Transferor & Transferee Company||Declaration of solvency by both transferor and transferee company.||Sec 233 (1)(c) r/w 25(2)|
|3.||CAA-11||Transferee Company||Filing the scheme of merger approved by the members and creditors.||Sec 233 (2) r/w 25(4)(A)|
|4.||CAA-12||Regional Director||Confirmation order by the RD for the scheme of merger.||Sec 233 r/w 25(2)|
e-FORMS TO BE FILED DURING THE FAST-TRACK MERGER
|S. NO||NAME OF THE FORM||BY||PARTICULARS|
|1.||GNL-1||Transferor & Transferee Company||It includes the notice inviting objections/suggestions in form CAA-9.|
|2.||MGT_14||Transferor & Transferee Company||Special Resolution & Board Resolution passed by both the Companies must be filed in form MGT-14.|
|3.||GNL-1||Transferee Company Only||Filing the scheme of Merger approved by the Members and Creditors in CAA-11.|
|4.||RD-1||Transferee Company||Filing of the scheme with RD.|
|5.||INC-28||Transferor & Transferee Company||The order approving the scheme must be filed with the ROC in form INC-28 by the involved Companies.|