Companies Bill 2013: Merger- Holding & Subsidiary

The Companies Bill, 2012 proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary, and small companies. This is a welcome move. The Companies Act, 1956 does not offer a simple process for such mergers and all such restructuring have to follow a cumbersome and time consuming process as any other mergers or amalgamations. The process involves seeking approval from shareholders, creditors, Registrar of Companies and the Official Liquidator as well as a High Court.

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There was a long felt need to simplify and fast track the procedure for mergers of holding-subsidiary or companies where interest of third parties is not involved. And so, the Companies Bill, 2012 has separate provisions to deal with mergers and amalgamations of holding and wholly-owned subsidiary companies, small companies and such other class of companies as the Central Government may prescribe. A ‘small company’ is a company other than a public company with paid-up share capital not exceeding Rs. 50 lakh or turnover not exceeding Rs. 2 crore or such higher sums as may be prescribed by the Central Government.

According to the provisions of the Companies Bill, these companies need not make an application to the National Company Law Tribunal/ High Court for finalizing mergers. As a safeguard measure, the Bill provides that such mergers be approved by 90% of each class of shareholders and creditors instead of the current requirement of 75% majority. Additionally, the directors are required to file ‘Declaration of Solvency’ with the Registrar of Companies (ROC). Also required is an advance notice to ROC and Official Liquidators (OL), who may give their comments on the scheme within 30 days. The comments and concerns of ROC & OL should be addressed by companies before seeking approvals from shareholders and creditors for the scheme. 

The Bill also offers a second opportunity to the central government, ROC & OL to place their objections, if any, after the scheme is approved by shareholders and creditors. If there are no objections from ROC or OL, the central government shall issue confirmation, which shall be registered with the ROC. The registration of the scheme shall be treated as completion of the merger process. In case of an objection by ROC or OL, the central government may file an application with the Tribunal and then the process of normal merger shall be followed. 

The Bill clarifies that this fast track process shall apply not just to mergers but also to all types of compromise & arrangements involving these companies. The companies have the option to follow the normal route of merger process if they desire. 

The new process is a right move towards simplifying procedural aspects of M&A. It is to be seen which other class of companies will be allowed to opt for the simplified process. The law has sufficient checks and balances to avoid its misuse. 

Removing the second opportunity given to ROC, OL & the central government will further expedite the process of approvals.

For any related query, Contact:
Mr. Ankit Singhi
+9111406222208, +919910888952

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