An Outlook on Fast Track Mergers and Amalgamation

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Fast Track Mergers

Due to the vast legal implications, mergers and acquisitions are time-consuming and complicated processes. Small businesses frequently struggle to address the legalities associated with such processes. To address this situation, the Ministry of Corporate Affairs (MCA) introduced fast-track mergers on December 15, 2015, under Section 233 of the Companies Act, 2013, read with Rule 25 of the Companies.

Section 233 of the Companies Act of 2013 introduced the concept of the Fast Track Merger process, which simplifies the complicated mergers and amalgamations procedure for almost all companies.

Fast Track Merger aims to empower these entities to complete M&A transactions quickly and precisely within a set time frame.

In contrast to the traditional merger process, the new Act has reduced the complications by removing the requirement to go through the judicial process with the National Company Law Tribunal.

Companies are now required to obtain permission from only three regulatory bodies, which are listed below.

Regional Manager

Companies Registrar

Official Insolvency Administrator

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Applicability of a fast-track merger & amalgamation

A scheme pertaining to merger or amalgamation under Section 233(1) of the Companies Act, 2013 may take place between:

  • Two or More small companies
  • A holding company and a wholly owned subsidiary
  • Other class of prescribed companies

Who is eligible to participate in the Fast Track merger and amalgamation?

Section 233 (12) of the Companies Act, 2013 allows the above-mentioned class of entities to opt out of the Court/Tribunal process of arrangement or compromise. A possible arrangement or compromise would be:

  • Between a company and its creditors, or any group of them; or
  • Between an entity and its members, or any subset of them

Fast Track Merger & Amalgamation Legal Procedure

The Fast Track Mergers & Amalgamation procedure can be described as follows:

  • Check that the company’s Memorandum of Agreement includes a provision for Amalgamation. If such a provision does not exist, it should be added through a legal process before proceeding with the process.
  • The following step is to submit the Provisional Financial Statements as of the date. Transferor and transferee entities are required to serve this purpose.
  • Following that, the transferor and transferee entities are expected to draft the merger Scheme.
  • In such a case, board approval is required, which means that the Merger Scheme must be approved by the board without exception. 
  • Under Rule 25 Sub-rule, the same meeting has the authority to authorise the form CAA, a legal consent to invite any rejections or suggestions against the proposed Scheme {1}.
  • ROC will respond to the CAA 9 form in about 30 days. The Official Liquidator, on the other hand, will take the same amount of time to serve this purpose.
  • In accordance with Rule 25 Sub Rule (2), the Transferor and Transferee entities must file the Declaration of Solvency CAA-10 with the ROC prior to sending notice of the meeting of creditors and members.
  • No-Objection Certificate from Creditors (Secured & Unsecured) – NOC must be dated after the said form has been filed and before the EGM for final approval.
  • The Board Meeting of the transferor and transferee entities will be called to organise the EGM.
  • Notice of General Meeting – In accordance with Rule 25 Sub Rule, the notice of the meeting must be attested with a Declaration of Solvency and a Detailed Statement, CAA-10 {3}.
  • General meeting to approve the scheme: The Scheme of M&A, as well as any suggestions from ROC and OL, will be considered in this meeting, and the Scheme will be authenticated.
  • In accordance with Section 233 (4), the Scheme must be approved by creditors representing 9/10th of the total value of the entities, either in person or by written consent obtained from the creditors in lieu of convening the meeting.
  • Filling out a form, MGT-14, to obtain ROC approval for a shareholder resolution.
  • The approved Scheme must be communicated to all regulatory authorities.
  • Submit the form CAA-11 in Form GNL-11 to the Registrar of Companies within seven days of the meeting’s decision, in accordance with Rule 25 Sub-rule 4(a), and include a complete statement in GNL-1 (This must be shared by Transferee Company for both the companies).
  • Manual submission of Form CAA-11 to ROC and OL within seven days of the general meeting. (The transferee company must submit the said firm for both companies.)
  • The Regional Director will communicate their concerns to the transferee company in the form of a questionnaire. The recipient has seven days from the date of receipt of the questionnaire to respond. Based on the recipient’s response, the regional director may cancel the Scheme.
  • The Scheme’s approval order will be received in CAA-12 in accordance with Rule 25 Sub Rule (6). Because the timeframe for filing an application with the Tribunal for application rejection is 60 days, the recipient can expect to receive such an order within 60 days.
  • In accordance with Section 233(7), filing of INC-28 for the order obtained- Within one month of the order obtained for the Scheme’s consent.

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Compliances and Post-Merger Effects

The Scheme of the Scheme could have the following effects, as listed below.

  • Transfer of the transferor entity’s assets or liabilities to the transferee entity;
  • Charges imposed on the transferor entity’s property, if any, will be applicable and legally enforceable as if the charges were imposed on the transferee company’s property.
  • Legal proceedings pending before any legal forum by or against the transferor entity shall be continued by or against the transferee entity.
  • The transferor company no longer has the right to a PAN, IEC, GST, ESI, or PF and has reported this to the appropriate authorities.

Conclusion

The fast track merger, enlisted under Section 233 of the Companies Act of 2013, seeks mandatory approval from creditors, shareholders, the ROC, the OL, and the regional director. As previously stated, companies planning to participate in mergers and amalgamations must address a slew of legal implications that necessitate precise paperwork and a legitimate approach.