Section 230 to 240 of the Companies Act, 2013 contains provisions of ‘Compromises, Arrangements, and Amalgamations’, that covers:
- Compromise or arrangements,
- Mergers and amalgamations,
- Corporate Debt Restructuring,
- Fast track mergers (process for small companies/holding subsidiary companies),
- Cross border mergers,
- Amalgamation of companies.
Corporate Restructuring: Restructuring is an act by which a company can reorganizeits legal, ownership, operational, or other major structural aspects to make it more profitable.
In general, companies may pursue corporate restructuring strategies in response to the drop-down profits, general market or economic forces and trends, changes in ownership, incorporate new technology or enlargethe cash flow of the company.
Restructuring is usually done to maximize the company’s strengths by reducing costs, eliminating inefficiency,and increasing profits.
Types of Corporate Restructuring Strategies
- Merger: A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are mainly equivalent in terms of size and scale of operations.
- Demerger: Demerger is the business strategy wherein a company transfers one or more of its business undertakings toanother company. In other words, when a company splits off its existing business activities into diverse components, with the intent to form a new company that operates on its own or sells or dissolves the unit so separated is called a demerger.
- Reverse Merger: When a weaker or smaller company acquires a bigger company, it is a reverse merger. Furthermore, when a parent company merges into the subsidiary or a loss-making company acquires a profit-making company, it is also termed as a reverse merger.
- Disinvestment: Selling a stake in a subsidiary, in a company or other investments is known as Disinvestment of Divestment. Divestment is a way to pare loses from raising money, exit a specific industry, or a non-performing asset generally used by Government resorts and Businesses.
- Takeover/Acquisition: A takeover occurs when one company makes a successful bid to assume control of or acquire another. Takeovers can be done by purchasing a majority stake in a target firm.
- Slump Sale: Transferring undertakings (one or more) as the outcome of the sale for a lump sum analysis without assigning values to the liabilities and individual assets in sales, is known as slump sale which comes under section 2(42C) of Income-Tax Act 1961.
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Posted by: CA Neetu Saini