Fast Track Mergers

Mergers and amalgamations are the processes of amalgamation of two or more entities/companies through inorganic means.It is a time-consuming process for all companies irrespective of their size, net worth, and turnover.This procedure wascomplex and timetaking for all stakeholders involved in the process.The process involves:-

  • Drafting a merger scheme
  • Taking judicial approval for the scheme
  • Getting Board and shareholders authorization, etc.

which defeats the purpose for which mergers were entered into and discourages the companies who are looking for collaborations.

Legal Regime behind Fast Track Mergers

  • The concept of fast-track mergers has been introduced under Section 233 of the Companies Act, 2013.
  • It provides an exemption from the regular merger procedure.
  • It exempted small companies, holding and subsidiary companies, and other companies as may be prescribed by CG, entering into merger arrangements from the regular merger procedure as stipulated under sections 230-232 of the Companies Act, 2013.

Following are the benefits that a fast-track merger can provide within Section 233 of the Companies Act:

  • Clarified and simple procedure for merger
  • No requirement of judicial approval
  • Different procedures for a certain company which will enable them to expand without any obstructions.
  • Form filings required also considerably reduced
  • Comparably less cost

Section 233: Merger or Amalgamation of certain specific companies

Applicability

  • small companies,
  • holding and wholly-owned subsidiary,
  • other companies as may be prescribed by CG

Note:prescribed by CG

A scheme of merger or amalgamation under section 233 may be entered into between any of the following companies:-

(i) 2 or more start-up companies; or

(ii) 1 or more start-up companies with one or more small companies.

Fast Track merger not applicable on:

  • subsidiary company or a holding company.
  • Non-profit organizations as per section 8; or
  • company or body corporate governed by any specialAct.

STEPWISE PROCEDURE:

Step 1:Both the companies should be duly authorized by their Article of Association. If not, then both the companies have to alter their Article of Association.

Step 2:Board meeting is to be conducted to approve the draft scheme of merger or amalgamation bypassing board resolution by both companies

Step 3:Once the scheme is approved in the board meeting both the companies will file theproposed scheme {in from CAA-9 is to be filed in Form GNL-1} to

  • ROC (both the roc where the registered office of transferor and transferee is situated)
  • Official liquidator
  • A person affected by the scheme.

Step 4:ROC, Official liquidator, or person affected by the scheme will forward its objection or comments to RD and Companieswithin 30 days from the date of the notice.

Step 5:Both transferor and transferee company shall file a declaration of solvency withROC in Form CAA-10 in form GNL-2.

Step 6:Both the companies will take the approval of members (holding atleast 90% of the total no. of share of the scheme) and the members will also consider the objection or comments received.

Step 7:In GM scheme shall be approved by

  • Members holding at least 90% of the value of shares.
  • Creditors holding at least 90% of the outstanding debt.

and if a meeting is not conducted then the scheme to be approved in writing by the majority representing the creditor of respective companies.

Both the companies will file Form MGT-14 with ROC as and when the special resolution is approved.

Step 8:Within 7 days, Transferee Company shall file the scheme with the Regional Directorin Form CAA-11 with the following documents:

  • Copy of scheme as proved by members and creditor
  • Result of each of the meetings.

Step 9:Copy of scheme shall be filed to

Mergers and amalgamations are the processes of amalgamation of two or more entities/companies through inorganic means.It is a time-consuming process for all companies irrespective of their size, net worth, and turnover.This procedure wascomplex and timetaking for all stakeholders involved in the process.The process involves:-

  • Drafting a merger scheme
  • Taking judicial approval for the scheme
  • Getting Board and shareholders authorization, etc.

which defeats the purpose for which mergers were entered into and discourages the companies who are looking for collaborations.

Legal Regime behind Fast Track Mergers

  • The concept of fast-track mergers has been introduced under Section 233 of the Companies Act, 2013.
  • It provides an exemption from the regular merger procedure.
  • It exempted small companies, holding and subsidiary companies, and other companies as may be prescribed by CG, entering into merger arrangements from the regular merger procedure as stipulated under sections 230-232 of the Companies Act, 2013.

Following are the benefits that a fast-track merger can provide within Section 233 of the Companies Act:

  • Clarified and simple procedure for merger
  • No requirement of judicial approval
  • Different procedures for a certain company which will enable them to expand without any obstructions.
  • Form filings required also considerably reduced
  • Comparably less cost

Section 233: Merger or Amalgamation of certain specific companies

Applicability

  • small companies,
  • holding and wholly-owned subsidiary,
  • other companies as may be prescribed by CG

Note:prescribed by CG

A scheme of merger or amalgamation under section 233 may be entered into between any of the following companies:-

(i) 2 or more start-up companies; or

(ii) 1 or more start-up companies with one or more small companies.

Fast Track merger not applicable on:

  • subsidiary company or a holding company.
  • Non-profit organizations as per section 8; or
  • company or body corporate governed by any specialAct.

STEPWISE PROCEDURE:

Step 1:Both the companies should be duly authorized by their Article of Association. If not, then both the companies have to alter their Article of Association.

Step 2:Board meeting is to be conducted to approve the draft scheme of merger or amalgamation bypassing board resolution by both companies

Step 3:Once the scheme is approved in the board meeting both the companies will file theproposed scheme {in from CAA-9 is to be filed in Form GNL-1} to

  • ROC (both the roc where the registered office of transferor and transferee is situated)
  • Official liquidator
  • A person affected by the scheme.

Step 4:ROC, Official liquidator, or person affected by the scheme will forward its objection or comments to RD and Companieswithin 30 days from the date of the notice.

Step 5:Both transferor and transferee company shall file a declaration of solvency withROC in Form CAA-10 in form GNL-2.

Step 6:Both the companies will take the approval of members (holding atleast 90% of the total no. of share of the scheme) and the members will also consider the objection or comments received.

Step 7:In GM scheme shall be approved by

  • Members holding at least 90% of the value of shares.
  • Creditors holding at least 90% of the outstanding debt.

and if a meeting is not conducted then the scheme to be approved in writing by the majority representing the creditor of respective companies.

Both the companies will file Form MGT-14 with ROC as and when the special resolution is approved.

Step 8:Within 7 days, Transferee Company shall file the scheme with the Regional Directorin Form CAA-11 with the following documents:

  • Copy of scheme as proved by members and creditor
  • Result of each of the meetings.

Step 9:Copy of scheme shall be filed to

  • ROC in Form GNL-1
  • Official liquidator

Step 10:Approval of Scheme

Then within 30 days,the company shall file the scheme to ROC in Form INC-28.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by:

CA Neetu Saini

AKGVG & Associates

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