Merger and Amalgamation
Merger is a combination of two or more companies into a single company where one survives and the others lose their corporate existence. The survivor acquires the assets as well as liabilities of the merged company or companies. All assets, liabilities and stock of one company stand transferred to transferee company in consideration of payment in the form of equity shares of transferee company or debentures or cash or a mix of the two or three modes.
Ordinarily amalgamation means merger. Halsbury's Laws of England describe amalgamation as a blending two or more existing undertakings into one undertaking. The shareholders of each blending of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertaking.
The blending of undertakings may take any of the following forms:
- One or more undertaking blending with another undertaking. This is more commonly known as absorption since in the process of blending an undertaking is getting absorbed into another undertaking.
- Two or more undertakings blending to form a new undertaking. This is more commonly known as merger, since the blending companies merge their respective separate identities to form a new undertaking.
Therefore the essence of amalgamation is to make an arrangement whereby uniting the undertakings of two or more companies so that they become vested in, or under the control of, one company which may or may not be the original of the two or more of such uniting companies.
- SCHEME OF AMALGAMATION
The scheme of amalgamation should be prepared by the companies, which have arrived at a consensus to merge. There is no specific form but it should generally contain the following information.
- Particulars about transferee and transferor companies.
- Appointed date
- Main terms of transfer of assets from transferor to transferee with power to execute on behalf or for transferee the deeds/documents being given to transferee.
- Main terms of transfer liabilities from transferor to transferee covering any conditions attached to loans, debentures, bonds, and other liabilities from bank, financial institutions, trustees and listing conditions attached thereto.
- Effective date when the scheme will come into effect.
- Conditions as to carrying on the business activities by transferor between appointed date and effective date.
- Description of happenings and consequences of the scheme coming into effect on effective date.
- Share capital of Transferor Company specifying authorised capital, issued capital and subscribed and paid up capital.
- Share capital of Transferee Company covering above heads.
- Description of proposed share exchange ratio, any conditions attached thereto, any fractional share certificates to be issued, transferee companies responsibility to obtain consent of concerned authorities for issue and allotment of shares and listing.
- Surrender of shares by shareholders of Transferor Company for exchange into new share certificates.
- Conditions about payment of dividend, ranking of equity shares, pro rata dividend declaration and distribution.
- Status of employees of the transferor companies from effective date and the status of provident fund, gratuity fund, super annuity fund or any special scheme or funds created or existing for the benefit of the employees.
- Treatment on effective date of any debt balance of transferor company balance sheet.
- Miscellaneous provisions covering income tax dues, contingencies and other accounting entries deserving attention or treatment.
- Commitment of transferor and transferee companies towards making applications/petitions under sections 391 and 394 and other applicable provisions of the Companies Act, 1956 to their respective High Courts.
- Enhancement of borrowing limits of the transferee company upon the scheme coming into effect.
- Transferor and transferee companies give assent to change in the scheme by the court or other authorities under law and exercising the powers on behalf of the companies by their respective Boards.
- Description of powers of delegatee of transferee to give effect to the scheme.
- Qualification attached to the scheme, which requires approval of different agencies.
- Description of revocation/cancellation of the scheme in the absence of approvals qualified in clause (t) above not granted by concerned authorities. The Transferor Company will be dissolved without winding up after amalgamation is affected.
- Statement to bear costs, etc. In connection with the scheme with the Transferee company.
- APPROVAL OF BOARD OF DIRECTORS FOR THE SCHEME
- Respective Board of Directors for transferee and transferor companies are required to approve the scheme of amalgamation
- APPROVAL OF SCHEME BY SPECIFIED FINANCIAL INSTITUTIONS/BANKS/TRUSTEES FOR DEBENTURE HOLDERS.
- The Board of Directors should in fact approve the scheme only after it has been cleared by the financial institutions/banks which have granted loans to these companies or the debenture trustees to avoid any major change in the meeting of creditors to be convened at the instance of the Company Court under section 391 of the Companies Act, 1956.
- INTIMATION TO STOCK EXCHANGE ABOUT PROPOSED AMALGAMATION.
- Listing agreements entered into between company and stock exchange require the company to communicate price-sensitive information to the stock exchange immediately and simultaneously when released to press and other electronic media on conclusion of Board meeting according approval to the scheme.
- APPLICATION TO COURT FOR DIRECTIONS.
- An application has to be made under section 391(1) to the High Court having jurisdiction over the registered office of the company for calling a meeting of its members by both the transferor and transferee company separately.
- HIGH COURT DIRECTIONS FOR MEMBERS MEETING
- Upon hearing the application the High Court shall give directions fixing the date, time, venue and quorum for the members meeting and appoint an Advocate chairman to preside over the meeting and submit a report to the Court.
- APPROVAL OF REGISTRAR OF HIGH COURT TO NOTICE FOR CALLING THE MEETING OF MEMBERS/CREDITORS
- DESPATCH OF NOTICES TO MEMBERS/SHAREHOLDERS
- Once the chairman of the forthcoming meeting as aforesaid has signed notice it could be dispatched to the members under certificate of posting at least 21 days before the date of the meeting.
- ADVERTISEMENT OF THE NOTICE OF MEMBERS MEETINGS
- The court may direct the issuance of notice of the meeting to these shareholders by advertisement in such newspaper not less than 21 clear days before the date fixed for the meeting.
- CONFIRMATION ABOUT SERVICE OF NOTICE
- It must be insured that at least one week before the date of the meeting, the Chairman appointed for the meeting files an affidavit to the Court about the service of notices to the shareholders that the directions regarding the issue of notices and advertisement have been duly complied.
- HOLDING THE SHAREHOLDER'S GENERAL MEETING AND PASSING THE RESOLUTIONS
- The general meeting should be held on the appointed date. The amalgamation scheme should be approved by the members, by a majority in number of members present in person or on proxy and voting on the resolution and this majority must represent at least 3/4ths in value of the shares held by the members who vote in the poll.
- FILING OF RESOLUTIONS OF GENERAL MEETING WITH REGISTRAR OF COMPANIES
- Once the shareholders general meeting approves the amalgamation scheme by a majority in number of members holding not less than 3/4ths in value of the equity shares, the scheme is binding on all the members of the company. A copy of the resolution passed by the shareholders approving the scheme of amalgamation should be filed with the registrar of Companies within 30 days from the date of passing the resolution.
- SUBMISSION OF REPORT TO THE CHAIRMAN OF THE GENERAL MEETING TO THE COURT
- The chairman of the general meeting is required to submit to the court within 7 days from the date of the meeting a report setting out therein the number of persons who attend either personally or by proxy, and the percentage of shareholders who voted in favour of the scheme as well as the resolution passed by the meeting.
- SUBMISSION OF JOINT PETITION TO COURT FOR SANCTIONING THE SCHEME
- Within seven days from the date on which the chairman has submitted his report about the meeting to the Court, both the companies should make a joint petition to the court for approving the scheme of amalgamation. The court shall fix a date for hearing of the petition and a notice of the hearing should be advertised in the same papers in which the notice of the meeting was advertised or in such other papers as the court may direct, not less than 10 days before the date fixed for hearing.
- ISSUE OF NOTICE TO REGINIOL DIRECTOR COMPANY LAW BOARD UNDER SECTION 394-A
- On receipt of the petition the Court shall give notice of the petition to the Regional Director, Company Law Board and will take into consideration any representations if made by him.
- HEARING OF PETITION AND CONFIRMATION OF SCHEME
- If there are no objection to the amalgamation scheme, the Court may pass an order sanctioning the scheme and directing that all the property, rights and powers of the transferor company be transferred without further act or deed to the transferee company and that all the liabilities and duties of the transferor company be transferred without further act or deed.
- FILING OF COURTS ORDER WITH ROC BY BOTH THE COMPANIES
- Both the companies should file the Courts order sanctioning the scheme of amalgamation with ROC within 30 days after the date of the Courts order. The amalgamation will be given effect to from the date on which the High Court's order is filed with the registrar.
- DISSOLUTION OF TRANSFEROR COMPANY
- The High Court has power, either by order sanctioning the scheme or by a subsequent order of dissolution, without winding up, of any transferor company provided the official liquidation has, on scrutiny of the books and papers of the company made a report to the Court that the affairs of the Company have not been conducted in a manner prejudicial to the interests of its members or to public interest.
- TRANSFER OF ASSETS AND LIABILITIES
- The High Court has powers to order for the transfer of any property or liabilities from Transferor Company to Transferee Company. Such properties and liabilities of the transferor shall automatically stand transferred to transferee company without any further act or deed from the date the Court's order is filed with ROC.
- ALLOTMENT OF SHARES TO SHAREHOLDERS OF TRANSFEROR COMPANY
- Pursuant to the sanctioned scheme of amalgamation, the shareholders of the Transferor Company are entitled to get shares in the Transferee Company in the exchange ratio provided under the said scheme.
- LISTING OF SHARES AT STOCK EXCHANGE
- After the amalgamation is effected, the company which takes over the assets and liabilities of the transferor company should apply to the Stock Exchanges where its securities are listed, for listing the new shares allotted to the shareholders of the transferor company.
- COURT ORDER TO BE ANNEXED TO MEMORANDUM OF TRANSFEREE COMPANY
- It is a mandatory requirement that the certified copy of the Court's order sanctioning the scheme of amalgamation is filed with the Registrar, it should be annexed to every copy of the Memorandum issued by the Transferee Company.
- PRESERVATION OF BOOKS AND PAPERS OF AMALGAMATED COMPANY
- The books and papers of the amalgamated company should be preserved and not be disposed of without prior permission of the Central Government.
- POST MERGER SECRETARIAL OBLIGATIONS
- The various formalities that have to be completed are filing of returns with Registrar of Companies, transfer of investments of transferor company in the name of the transferee, intimating banks and financial institutions, creditors and debtors about the transfer of the transferor company's assets and liabilities in the name of the transferee company, etc.
LEGAL PROCEDURE AND COMPLIANCES
Objects clause in the Memorandum of Association of both the acquirer company as well as the acquirer companies should have adequate provisions to the following effect:
- Provision to amalgamate with any other company or body of persons, along with the provision to sell or dispose of the whole or any part of the undertaking or any of the undertakings of the company.
- Provision to carry on the business of the acquired company with particular reference to the business activity in view of the form as horizontal, vertical, circular or of conglomerate nature
- Provision of adequacy of authorised capital to be able to absorb the capital structure of the acquired company within its own framework of authorised capital.
- In case there is no provision in the objects clause in respect of the above matters, then the company has to take measures to amend the memorandum of association.
GOVERNMENT/RESERVE BANK APPROVALS
Approvals for effecting merger from the Central Government and from Reserve Bank of India are required to be obtained for filing petition before the High Court for the approval of merger under section 391 and 394.
PREPERATION OF SCHEME OF AMALGAMATION
The Acquirer Company should prepare a scheme of amalgamation.
APPROVAL OF THE BOARD
The draft of the scheme of amalgamation as prepared above is required to be approved by the Board of Directors of both the acquirer and acquiree companies. The board should also authorise the Directors to make application to the High Court under section 391 of the Companies Act.
INFORMATION TO STOCK EXCHANGE
The regional stock exchanges in whose jurisdiction the registered office of the listed companies under merger proposal are located should be informed of the proposed merger by sending a copy of the draft scheme and also the board Resolution for their information and record.
APPROVAL OF FINANCIAL INSTITUTIONS/BANKS
Applications should be made to the financial institutions and banks who have advanced funds to the merging companies for their projects submitting the draft scheme for their approval and insure receipt of the written approval from them.
APPROVAL OF HIGH COURT
Both the companies, separately, have to make applications under section 391 of the Companies Act, 1956 in the High Court for an order convening the meeting of the members of the two companies for their projects submitting the draft scheme for their approval and ensure receipt of the approval from them.
NOTICE OF MEETINGS
Notices of the meetings have to be given to the shareholders and creditors and meetings have to be held and scheme of amalgamation has to be approved. Chairman of each meeting has to submit his report within seven days to the High Court.
COURT TO GIVE DIRECTIONS
Upon hearing the application, the Court may make such order or give such directions as to the proceedings to be taken for the purpose of merger or amalgamation
PETITION TO COURT AND ORDER
The High Court shall give directions on the petition to the official liquidator to scrutinise the books of the transferor company and submit a report, stating therein that the affairs of the company are not being conducted in a manner prejudicial to the interest of its members or to public interest.
The High Court shall fix a date for hearing the petition. The Court shall give notice of every application made to it, to the Central Government and shall take into consideration the representation, if any made to it by the Central Government before passing any order.
A copy of the order is required to be filed with the registrar of Companies within 30 days of passing of such orders by the Court.
ISSUE OF SHARE CERTIFICATES
To give effect to merger, the Transferee Company will have to issue the share certificates in the ratio approved under the scheme.