Merger and Amalgamation of companies will bring diversification and expansion of their business, it may also lift a company from inscribed losses in the past. The tedious and time-galloping procedure of merging of two companies of The Companies Act,1956 has been simplified with a fast track merger under Companies Act 2013. Fast track merger under section 233, however, will not apply for all companies.It only applies to a specific class of companies, while other class of companies will remain opted for the older procedure.
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Fast track merger applicability:
The class of companies that can avail the benefit of fast track merger:
1. Two small companies
2. Holding company and its wholly-owned subsidiary company.
Fast track merger of small companies:
Since the fast track merger scheme only applies for small companies, it is popularly be known in the corporate world as a fast track merger of small companies. Section 285 categorize small companies on the following criteria:
- The company should not be a public company.
- Paid-up share capital(money acquired by the company in exchange for its shares) should not be more than INR 50 lakhs.
- Turnover less than 2 crores in the last financial year.
Fin-bites: Fast track merger may also be obtained by other prescribed class/classes of companies. In such cases, the paid-up share capital limit is 10 crores and the turnover limit is set as 100 crores.
Fast track merger of Holding companies & its subsidiaries:
- The company can be public, private or a section 8 company.
- Merging with multiple wholly-owned subsidiaries requires multiple applications.
Benefits of fast track merger:
- Non-requirement of approval from NCLT(National Company Law Tribunal)
- Not mandatory to issue Public Advertisement
- Reduced administrative burden
- Avoidance of series of court hearings
- The court convened meeting has been excluded
- Lesser costs involved
Preliminary procedure:
The Articles of Association(AOA) of both the transferor and the transferee companies must permit for mergers and amalgamations. If not, a provision has to be created for the same. A draft scheme for a fast track merger to be made.
Fast track merger procedure:
1. Convening of Board Meeting:
A meeting to be convened with the board members to discuss the following :
- Approval of the scheme of fast track merger.
- To schedule the shareholder’s meeting.
- To schedule the creditor’s meeting.
2. Issuing of Notice:
Post the board meeting, upon agreement of all the board members, a notice of the proposed scheme must be submitted by the transferor and the transferee, along with a copy of the scheme to:
Registrar of Companies(ROC) where the registered office of the corresponding companies are located(and)Official Liquidator(or)Person affected by the scheme
Form CAA-9 must be filed by inviting any objections or suggestions from them.
3. Filing Declaration of Solvency with the ROC:
Both transferor and the transferee must file the declaration of solvency to the Registrar of companies(ROC) in Form CAA-10, before convening the meeting of members and creditors.
Both transferor and transferee must host a shareholder meeting. A notice for the meeting has to be sent to the members before 21 days of the schedule and it should hold the following information:
- Copy of the scheme
- The statement containing details of the merger
- Declaration of solvency
- Copy of latest audit statements
- Copy of valuation report
Any other relevant information shall be added.
The scheme proposes should be approved by the respective members/class of members holding more than 90% of the shares. In some cases, a written agreement from the members holding more than 90% of the shares can be accepted without hosting the meeting.
5.Convening of the meeting of creditors:
A notice of the meeting to be issued before 21 days and the meeting to be held for the consent of the creditors. As before, the notice should contain the following:
- Copy of the scheme
- The statement containing details of the merger
- Declaration of solvency
- Copy of latest audit statements
- Copy of valuation report
- Any relevant information
The scheme proposes should be approved by the respective creditors/class of creditors holding more than 90% of the shares. In some cases, a written agreement from the creditors holding more than 90% of the shares can be accepted without hosting the meeting.
6.Filing the Scheme:
This provision, as governed in Rule 25(4) of the Companies Act, is only applicable to the transferee company. Form CAA-11 is to be submitted to the Regional Director within seven days of the end of members or creditors’ meeting. The following are the documents to be filed:
- Copy of the scheme
- Report of the result of all the meetings conducted
Additionally, a copy of the scheme and Form CAA-11 is to be submitted with the Registrar in Form GNL1 and also to the official liquidator through post or in-person delivery.
7. Approval by the Regional Director:
The scheme is to be approved by the regional director.
- If the registrar and the official liquidator have no objections/suggestions to the scheme the registrar will report the same and will issue a confirmation to the merger.
- If the registrar or the official liquidator has any objections/suggestions a write-up will be forwarded to the Regional Director by them within thirty days. If no such write-up is communicated it will be assumed as Nil obligations and the merger will be processed.
- If the regional director deems the objections/suggestions to be not in the interest of the public/creditors. In such a case, the company may apply to the tribunal in Form CAA-13, describing the objections and ask the tribunal to consider the merger scheme.
- If the regional director deems the objections to be unfit, then he shall issue the confirmation of the scheme with Form CAA-12.
8. Filing of confirmation order:
Both the transferor and the transferee must file a copy of the confirmed order of the scheme of fast track merger to the office of ROC, in form INC-28. The ROC will issue a confirmation and communicate to the ROC where the transferor is registered.
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