In order to enhance the value generation, market share and cost-efficiency of businesses, companies often lead to mergers and acquisitions. Generally, Mergers and Acquisitions have manifold advantages and have proven its usefulness in numerous complicated situations in the past. But, the Companies Act, 2013 of India involved separate provisions and tedious procedures to deal with them, which also required approval from many regulatory bodies as well as Central Government and direction. In consideration to same, there was a sincere demand for years to both simplify as well as expedite the procedure of mergers, amalgamations and acquisitions. On 15th December, 2016, the Ministry of Corporate Affairs (MCA) notified a novel and a welcome concept of ‘Fast Track Merger’ by introducing Section 233 of Companies Act, 2013.
What is the ‘fast track merger process?
Section 233 of the Companies Act, 2013 introduces the globally accepted concept of ‘Fast Track Merger Process’ which introduces a slightly simpler procedure for mergers and amalgamations of certain classes of companies including small companies, holding and subsidiary companies. Under this process, it enables these companies to undergo merger and amalgamation procedures quickly, simply and within fixed time duration. The Companies Act, 2013 clearly notifies that it applies to all kinds of compromise and arrangements that involve these companies.
What are the important provisions of Fast Track Merger Process?The key important provisions of the fast track merger process are outlined below:
- That Merger & Amalgamation (M & A) may be entered between 2 or more small companies having paid up capital less than Rs.5 million and turnover less than Rs.20 Million; or
- That Merger & Amalgamation maybe entered between holding and its wholly owned subsidiary company;
The following companies provided below are excluded from the fast track merger process:
- That Merger & Amalgamation may be entered between other classes or classes of companies as may be prescribed.
- Section 8 Companies under the act
The draft scheme requires approval of:-
- Companies regulated under special act
- Board of Directors of both the companies.
- 90% of shareholders (in number) and 90% of creditors (in value).
- Central Government ( power delegated to Regional Director)
Mandatory requirements The following are the mandatory requirements for the facilitation of the ‘fast track merger’ process:
- The scheme must be filed with the Jurisdictional Registrar of Companies (ROC) as well as the official liquidator.
- Convening a meeting of members and creditors in order to obtain aforementioned approval. The creditor’s meeting can be avoided if they readily provide their consent in writing.
Fast Track Merger process has facilitated the procedure by removing the following requirements:-
- The filing of a declaration of solvency by both the involving companies.
- There is no requirement to submit an auditor’s certificate.
- Now, there is no need to file the scheme before the National Company Law Tribunal (NCLT).
- The estimated time period for the fast track procedure has been allotted to 90-100 days.
The procedural details for the Fast Track Merger process are set down under the Companies (Compromises, Arrangement & Amalgamation) Rules, 2016.
What are the advantages of this process over traditional mergers?
In comparison to traditional mergers process, the new Act has simplified the procedures as it no further involves judicial process as concerned with the National Company Law Tribunal. Now the companies are required to take an approval from only three regulatory authorities, i.e. Regional Directors, the Registrar of Companies and Official Liquidator. The merger process is time bound as well as cost effective. The approximate time is from 90-100 days only and there is a 30 days limit inflicted on the regulatory authorities. The Fast Track Merger process has expedited the procedure of approvals by removing the second opportunity as earlier given to regulatory authorities to raise objections.
What are the disadvantages of the fast track merger process?
Up till now, there are no prominent disadvantages of this novel concept that is expected to bring relief to small and holding companies. The consequent effects of this new concept will be overviewed in future years and enable the experts to draw relative conclusions accordingly.
This new section has been carefully drafted and entails necessary checks to avoid any misuse of fast track merger procedures. In addition, it has come out as a welcoming move for small, holding and subsidiary companies as the process is simple, swift and time-bound. The companies are in no obligation to follow this process and have the option to choose a traditional route even, as per their desirability.