Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023
Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023
The Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023 have been recently issued by the Ministry of Corporate Affairs (MCA) to improve the business environment and make it easier to conduct business activities. These Amendment Rules, which will come into effect on June 15, 2023, aim to streamline and expedite the procedures involved in corporate mergers and amalgamations. They introduce new provisions and timelines to simplify the amalgamation process outlined in the Companies Act 2013. The objective is to make the process more efficient and user-friendly for businesses.
Synopsis of Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023
The Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023, introduced by the MCA, aim to streamline the approval process for mergers.
- The key objective of these amendments is to simplify and expedite the procedures involved in merging companies.
- By implementing these rules, the MCA intends to facilitate smooth and efficient mergers, enabling businesses to restructure and integrate seamlessly.
The official notification about the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 is as follows:
Companies-Compromises-Arrangements-an- Amalgamations-20230517A Comprehensive Overview of Amalgamation under the Companies Act, 2013:
Amalgamation, defined under the Companies Act 2013, is a legal procedure that involves merging two or more companies into a single entity. This process combines the assets, liabilities, and operations of the amalgamating companies, forming or integrating a new company into an existing one.
The Companies Act 2013 provides a framework for carrying out amalgamations, including preparing a scheme of amalgamation, approval from shareholders and creditors of the involved companies, and obtaining necessary regulatory and court approvals.
Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020
Applicability of Section 233 of the Companies Act, 2013: Understanding the Scope
In the Companies Act 2013, Section 233 introduces a Fast Track Process for mergers and amalgamations. However, this provision applies only to specific categories of companies, including:
- Two or more start-up companies
- One or more start-up companies with one or more small companies
- Two or more small companies
- A holding company and its wholly-owned subsidiary company
Before delving deeper, it is essential to clarify the definition of a “start-up” for this Act. A company is considered a start-up if it is registered as such under the existing laws, subject to any amendments made from time to time.
Section 233, in conjunction with Rule 25, has gained significant importance in today’s fast-paced economy. Unlike the previous regime, the Act allows companies to merge without seeking approval from the National Company Law Tribunal, thereby reducing delays. However, the process still presents challenges, necessitating amendments. To fully understand the changes brought about by the Amendment Rules, let us first examine the existing Rules.
The merger and amalgamation process under section 233 of the Combines Act 2013 is commonly known as a ‘fast-track merger.
Amendment to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016:
Before 2023, the Amendment Rules brought certain modifications to the existing Rules. Let’s look at the changes made to sub-rules 5 and 6 of Rule 25:
Sub-rule 5:
Under the previous version, the Central Government had the authority to issue a confirmation order for the merger or amalgamation scheme if it was satisfied in either of the following situations:
- The Registrar of Companies or Official Liquidator received no objection or suggestion.
- Any objection or request received was considered not sustainable.
Sub-rule 6:
If objections or suggestions were received from the Registrar of Companies or Official Liquidator, and the Central Government formed an opinion that:
- Based on such complaints or suggestions, or
- For any other reason,
The scheme was not in the public interest, and then the Central Government could apply to the Tribunal to consider the scheme under Section 232 of the Act. This application had to be filed within sixty (60) days.
Changes introduced by Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023
Companies (Compromises, Arrangements, and Amalgamations) Amendment Rules, 2023, replace the existing sub-rules (5) and (6) of rule 25 in the Principal Rules. The main changes are outlined below:
Changes in Sub-rule (5):
Introduction of Time Limits for Objections and Suggestions
As per section 233 (2) and (3) of CA 2013, in conjunction with the substituted sub-rule 5, the registrar of companies and the official liquidator are now required to raise objections or provide suggestions to the central government (delegated to the regional director) within 30 days of receiving the merger scheme.
Empowerment of the Central Government for Confirmation Order
If the registrar and the official liquidator fail to submit objections or suggestions within these 30 days, and if the central government determines that the scheme is in the interest of the public or creditors, it is empowered to issue a confirmation order within 15 days after the expiration of the 30 days.
Deemed Approval Provision
Before this amendment, there were no specified time limits for the registrar and the official liquidator to submit objections or suggestions to the scheme. Additionally, the MCA has introduced a provision for deemed approval in the substituted sub-rule (5). Suppose the central government fails to issue a confirmation order within 60 days of receiving the scheme. In that case, it will be deemed that the central government has no objection to the proposed scheme and will be obligated to issue the confirmation order. The confirmation order will be issued in Form No. CAA.12.
Changes in Sub-rule (6)
Central Government’s Assessment and Confirmation Order
Suppose the central government deems that the objections or suggestions from the registrar and official liquidator are invalid and that the scheme is in the public’s or creditors’ interest. In that case, it will issue the confirmation order within 60 days of receiving the scheme.
Application to the Tribunal in Certain Cases
However, suppose the central government believes that the scheme is not in the interest of the public or creditors (based on the objections or otherwise). In that case, it can apply with the Tribunal within 60 days of receiving the scheme, requesting that it be processed under section 232 of CA 2013 instead of section 233. Furthermore, the MCA has introduced a deemed approval mechanism in the substituted sub-rule (6).
Deemed Approval Mechanism
The MCA has introduced a deemed approval mechanism in the substituted sub-rule (6). According to this provision, if the central government fails to provide a confirmation order or submit an application to the Tribunal within 60 days of receiving the scheme, it will be considered that it has no objection to the scheme. Consequently, the central government will be obligated to issue the confirmation order.
Expediting the Fast-Track Merger Process:
By implementing the amendments mentioned above to the Principal Rules, it is evident that the MCA aims to accelerate the fast-track merger process. This is achieved by specifying time limits for government authorities to promptly communicate their objections or suggestions. Consequently, companies can swiftly restructure their businesses under the fast-track merger process.