Merger and Amalgamation (M&A) are strategic corporate actions that involve the consolidation of two or more companies into a single entity. Under the Companies Act, 2013, Sections 230-240 outline the legal and procedural aspects of M&A. In this article, we’ll provide a quick review of the key steps and processes involved in M&A transactions.
M&A or CAA Process (U/s 230-240 of Companies Act, 2013)
1. Check MOA of Both Companies: Before initiating an M&A process, it’s crucial to review the Memorandum of Association (MOA) of both companies involved. This step ensures that the merger aligns with the objectives and framework defined in the MOA.
2. Prepare Valuation Report & Swap Ratio: Valuation is a critical aspect of M&A. A valuation report must be prepared to determine the fair value of assets and liabilities of the companies. The swap ratio, which dictates the exchange of shares or assets, is derived from this valuation.
3. Preparation of Draft Scheme: Drafting a comprehensive scheme of amalgamation or merger is a pivotal step. This scheme outlines the entire process, including the share-swap details, treatment of employees, and creditor arrangements.
4. Conduct Board Meetings for Approval: Both companies must convene board meetings to seek approval for the proposed scheme, valuation report, and swap ratio. This is a crucial internal approval process.
5. Intimate to Stock Exchange and NOC: Informing the stock exchange about the board meetings and proceedings is essential. Obtaining a No Objection Certificate (NOC) or Observation Letter from the stock exchange is often required.
6. Application to NCLT (National Company Law Tribunal): To proceed legally, an application must be submitted to the NCLT using NCLT-1 along with a notice of admission in form NCLT-2.
7. Affidavit in Support of Application: A supporting affidavit, typically in form NCLT-6, is submitted to bolster the application.
8. Notice of EGM and Chairman Appointment: As directed by the Tribunal, a notice for an Extraordinary General Meeting (EGM) must be issued. The NCLT typically appoints the chairman of the meeting.
9. Advertisement and Individual Notices: Advertisements regarding the EGM should be published in newspapers and on SEBI’s website. Individual notices, along with postal ballot forms, should be sent to all members and creditors.
10. Notice to Statutory Authorities and Stock Exchange: Statutory authorities and stock exchanges should be informed, and any objections they raise should be addressed.
11. Conduct Meeting as per NCLT’s Directions: The EGM should be conducted following the date, time, and place specified by the NCLT.
12. Approval by Majority (75%): The scheme requires approval by a 75% majority of shareholders and creditors.
13. Report Results to NCLT: The outcome of the meeting must be reported to the NCLT within the specified time frame using form CAA-3.
14. Petition for Sanctioning of Scheme: Within seven days of reporting the result, a petition for the sanctioning of the scheme must be filed in form CAA-4.
15. NCLT Hearing: The NCLT will schedule a hearing to review the scheme.
16. Publication of Hearing Date: The date of the hearing should be published in newspapers at least ten days before the scheduled date.
17. Hearing and Approval: The NCLT conducts the hearing and grants approval if the scheme meets all legal requirements.
18. Filing Hearing Order: The hearing order issued by the NCLT must be filed with the Registrar of Companies (ROC) and the stock exchange, following the prescribed format.
19. RBI Approval (if necessary): If the transaction involves foreign exchange or RBI regulations, obtaining their approval is essential.
20. Transfer of Assets and Liabilities: After NCLT approval, the actual transfer of assets and liabilities between the merging entities takes place.
21. Allotment of Shares (if applicable): If applicable, shares are allotted to shareholders of the transferor company based on the approved scheme.
22. Listing of Shares (if applicable): If required, ensure that the shares are listed on stock exchanges.
23. Compliance and Post-Merger Integration: Continuous compliance with the NCLT’s order, as well as post-merger integration activities, ensure a successful merger.
Navigating the legal and procedural aspects of merger and amalgamation requires meticulous planning and adherence to regulatory frameworks. Companies must follow a well-structured process, obtain necessary approvals, and ensure compliance at every step to execute successful M&A transactions. Engaging experienced legal and financial professionals is crucial to facilitate a smooth merger process and achieve the desired strategic objectives.