Chapter 12 Fast Track Mergers – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.
Fast Track Mergers – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material
Question 1.
The Board of directors of MNM Ltd., a small company is considering to merge with BRQ Ltd., another small company. The Board wants the merger to be fast and seeks your opinion about the conditions to be complied in this respect. Render your opinion based on the provisions of Companies Act, 2013. (June 2019, 5 marks)
Answer:
In a Fast Track Merger under Section 233 of the Companies Act, 2013 and rules made thereunder, broadly the steps followed are as under:
- Both the companies need to check their Articles of Association and ensure that they have the requisite authority under them to enter into a merger. If no, the Articles of Association should be amended before the merger can take place.
- Convene the Board meeting and prepare a draft scheme of merger or amalgamation.
- Prepare the financial statement of assets and liabilities and get an Auditor’s Report prepared.
- Get the draft scheme approved in the Board meeting.
- Both the companies need to send a notice to the Registrar of Companies (ROC) and Official Liquidator (OL) of their respective regions inviting suggestions/ objections to the scheme, if any, within 30 days of issuing the notice.
- Notice to the ROC shall be in Form CAA-9.
- Both the companies are required to file a declaration of solvency with their respective ROCs. The declaration of solvency shall be accompanied by (a) Board Resolution (b) Statement of Assets and Liabilities and (c) Audit Report.
- Sending notice for holding shareholders meeting and creditors meeting.
- Conducting the shareholders meeting and creditors meeting and getting the scheme approved.
- Filing the results of such meeting with the Regional Director and Official Liquidator by the transferee company.
Question 2.
“Under Companies Act, 1956 small companies were deterred from entering into mergers owing to the lengthy process and the Companies Act, 2013 provided a solution”. Comment. (June 2019, 5 marks)
Answer:
The legal provisions pertaining to merger process stipulated in Sections 391 – 394 of the Companies Act, 1956 was not considered as a simple procedure and there was no special provision for small companies. The process involved, inter alia, drafting a merger scheme, taking judicial approval for the scheme, getting Board and shareholders authorization, etc.
Section 233 of the Companies Act, 2013 has introduced the concept of fast track mergers. It carved out an exception from the regular merger procedure. It exempted small companies and holding and subsidiary companies entering is not merger arrangements from the regular merger procedure as stipulated under Sections 230-232 of the Companies Act, 2013. Section 233 of the Companies Act, 2013 along with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 lay down the entire legal framework of fast track mergers.
Fast track merges provide the following benefits:
- Simplified procedure for merger
- No judicial approval is required
- Separate procedures for small companies to enable them to expand without any roadblocks
- Form filings required also significantly reduced
- Fast track mergers have dispensed with Tribunal approval for mergers.
Regional Directors, Registrar of Companies (ROC) and Official Liquidator are the authorities whose approval is required. The process has been simplified to a great extent.
A provision allowing the government to notify any other company in this regard has also been made.
Question 3.
Brakes Ltd.,* a small company manufacturing brakes proposes to merge with Lubricants Ltd., another small company. Registrar of Companies (RoC) objected the scheme on the ground that it is not in the interest of the creditors. Comment on further steps as per Companies Act, 2013. (June 2019, 5 marks)
Answer:
Section 233 of the Companies Act, 2013 provides the conditions which small companies have to follow for the merger (fast track merger). As per the said section further steps in the matter are as follows:
(i) The Registrar will communicate the objections or suggestions to the scheme to the Central Government within a period of thirty days. In the absence of any such communication, it would be presumed that no objections were raised.
(ii) If the Central Government after receiving the objections or suggestions or for any other reason forms the opinion that the said scheme is not in public interest or in the interest of the creditors, it can file an application before the Tribunal within a period of sixty days.
(iii) After filing of such application, the Tribunal has to render its judgment. If it is of the opinion (with reasons recorded in writing) that the scheme should be considered as per the procedure laid down in Section 232 of Companies Act, 2013, it may give directions accordingly.
Provided that if the Central Government does not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme.
Question 4.
“Small Companies can only opt for Fast Track Mergers”. Elucidate briefly for identifying small companies. (June 2019, 3 marks)
Answer:
Section 233 of the Companies Act, 2013 has introduced the concept of fast track mergers. It exempted small companies and holding and subsidiary companies entering into merger arrangements from the regular merger procedure as stipulated under Sections 230-232 of the Companies Act, 2013. Section 233 of the Companies Act, 2013 along with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 lay down the entire legal framework of fast track mergers.
‘Small Company’ under Section 2(85) of the Companies Act, 2013 means a company, other than a public company:
(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; and
(ii) turnover of which as per profit and loss 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 of the Companies Act, 2013; or (c) a company or body corporate governed by any special Act.
Question 5.
What are the types of valuation for a start-up unit ? Give any five methods. (June 2022, 5 marks)
Question 6.
Write a note on Fast Track Mergers?
Answer:
- Section 233 of the Companies Act, 2013 has introduced the concept of fast track mergers.
- It carved out an exception from the regular merger procedure
- It exempted small companies and holding and subsidiary companies entering into merger arrangements from the regular merger procedure as stipulated under sections 230-232 of the Companies Act, 2013 Merger or amalgamation of certain companies – Section 233
Question 7.
What are the benefits of Section 233 or fast track mergers?
Answer:
- No requirement to apply to the National Company Law Tribunai
- No requirement to get a special audit conducted for the transferor company
- No requirement to issue public advertisements announcing the merger
- Less cost intensive and less time consuming
Question 8.
Write a note on Small Company?
Answer:
A small company is essentially a private limited company and not a public company.
- Paid-up share capital does not exceed 4 crore rupees.
- Turnover does not exceed 40 crore rupees
- It is not a holding or subsidiary company
- A company or body governed under any special Act
- A company formed for charitable purposes (company within the meaning of Section 8 of the Companies Act, 2013).
Question 9.
What aspects to be kept in mind for Fast Track Merger?
Answer:
- Assess whether the merger is beneficial before entering into one.
- Conduct due diligence on the film sought to be merged with.
- Remember both the companies need to be small companies for FTM to apply.
- Have a prescribed timeline and a strategy in place in order to avoid undue delay.
- Think of all the possible objections you may receive from ROC and already keep solutions ready so as to save time.
Fast Track Mergers Notes
Fast Track Mergers
- Section 233 of the Companies Act, 2013 has introduced the concept of fast track mergers.
- It carved out an exception from the regular merger procedure
- It exempted small companies and holding and subsidiary companies entering into merger arrangements from the regular merger procedure as stipulated under sections 230-232 of the Companies Act, 2013
Merger or Amalgamation of certain companies – Section 233
A notice of the proposed scheme soliciting objections or suggestions from the Registrar and the official liquidators was to be issued by the transferor or the transferee companies within thirty (30) days.
If any objections or suggestions are received, then the same are considered in their respective general meetings and approved/ disapproved by their respective members.
A declaration of solvency is required to be filed by both the companies involved in the merger.
The scheme has to be approved by majority of creditors representing nine-tenths in value of the creditors or class of creditors of the respective companies.
The transferee company is required to file a copy of the approval in the prescribed manner, with the Central Government, Registrar and the Official Liquidator where the registered office of the company is situated.
On receiving the said scheme, if the Registrar or the Official Liquidator does not have any objections or suggestions to the scheme, the Central Government shall register the said scheme and issue a confirmation thereof to the companies.
If the Registrar or Official Liquidator has any objections or suggestions, the same may be communicated to the Central government within a period of thirty days. In the absence of any such communication, it would be presumed that no objections were raised.
If the Central Government after receiving the objections or suggestions or for any other reason forms the opinion that the said scheme is not in public interest or in the interest of the creditors, it can file an application before the Tribunal within a period of sixty days.
After filing of such application, the Tribunal has to render its judgment. If it is of the opinion (with reasons recorded in writing) that the scheme should be considered as per the procedure laid down in section 232, it may give directions accordingly.
Benefits of section 233 or fast track mergers
- No requirement to apply to the National Company Law Tribunal
- No requirement to get a special audit conducted for the transferor company
- No requirement to issue public advertisements announcing the merger
- Less cost intensive and less time consuming
Small Company
A small company is essentially a private limited company and not a public company.
- Paid-up share capital does not exceed 50 lakh rupees
- Turnover does not exceed 2 crore rupees
- It is not a holding or subsidiary company
- A company or body governed under any special Act
- A company formed for charitable purposes (company within the meaning of section 8 of the Companies Act, 2013).
Advantages of being a small company
- The procedure of filing annual returns of a small company is comparatively easier
- Small companies are required to conduct only 2 board meetings in a year whereas private limited companies not classified as small companies have to conduct four board meetings in a year.
- A small company is not required to prepare a cash flow statement
- A small company is not required to rotate its auditors unlike other private limited companies who are required to rotate their auditors every 5 or 10 years.
Aspects to be kept in mind for Fast Track Merger
- Assess whether the merger is beneficial before entering into one.
- Conduct due diligence on the firm sought to be merged with.
- Remember both the companies need to be small companies for FTM to apply.
- Have a prescribed timeline and a strategy in place in order to avoid undue delay.
- Think of all the possible objections you may receive from ROC and already keep solutions ready so as to save time.