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Fast Track Merger

Fast Track Merger

Fast Track Merger Scheme was introduced in December 2016 under Section 233 of the Companies Act 2013, read with Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The enactment is considered a solution to the lengthy process involved in mergers earlier, i.e. under the Companies Act of 1956. This article explains the procedure connected with fast track merger by exploring the various facets of the initiative.

Applicability

The scheme of fast track merger can be entered into by the following companies:

Holding Company and its Wholly Owned Subsidiary Company

Companies of such description could be public, private or Section 8 companies. Holding companies desiring to merge with more than one of its wholly-owned subsidiaries are required to make more than one application for this purpose.

Small Companies

Two or more small companies may form a merger between themselves. Section 2(85) of the Companies Act considers a company as small if:

• It is not a public company.
• Has a paid-up share capital of not more than INR 50 lakhs or such higher amount as may be prescribed (which shall not be more than INR 10 crores); or has a turnover (as per the profit and loss account of the immediately preceding financial year) of not more than INR 2 crores or such higher amount as may be prescribed (not more than INR 100 crores).

Note – the facility may also be adopted by other prescribed class/classes of companies.

The Effects of Transition

The newly introduced mechanism offers the following benefits to the merger process among various others:

1. Removal of a provision that mandates the approval of the NCLT (National Companies Law Tribunal).
2. Non-requirement of issuing public advertisement.
3. Removal of Court Convened Meeting.
4. Lesser administrative burden.
5. Provision for the avoidance of Series of Hearing.
6. Lower merger costs.

Preliminary Procedure

Before getting on with the merger process, the companies desirous of such a move must duly verify whether the Articles of Association (AOA) of the Transferor and Transferee companies facilitate mergers and amalgamations. If not, a provision for the same must be created by altering the document.

Guide to Fast Track Merger

Here’s a step-by-step guide on the process of fast track merger:

Step 1 – Convening of Board Meeting

To start with, a Board Meeting must be convened to pass the following resolutions:

• Approval of the scheme.
• Scheduling the shareholders meeting.
• Scheduling the creditors meeting.

Step 2 – Submission of Notice

After the Board of Directors of each of the companies assent to the merger, a notice of the proposed scheme must be filed by both the transferor and transferee companies with the ROC (Registrar of Companies) where the respective office of the concerned company is located and the Official Liquidator or persons affected by the scheme (along with a copy of the scheme). The filing must be done in Form CAA-9 by inviting any objections or suggestions from them.

Step 3 – Filing Declaration of Solvency with the ROC

A declaration of solvency must be filed with the respective ROC in Form CAA-10 before convening the meeting of members and creditors for the approval of the scheme. Companies pursuing this process must file the said declaration by remitting a fee as prescribed under the Companies (Registration Offices and Fees) Rules, 2014.

Step 4 – Holding a Meeting of Members

The notice of meeting for the purpose of this provision must be issued to the members before 21 days, along with the following attachments:

• The copy of the proposed scheme.
• The statement of details of the merger.
• A declaration of solvency made in Form CAA 10.
• Copy of the latest audited financial statements of each company.
• Copy of the valuation report (if any).
• Any other relevant information.

Moreover, the scheme must be approved by the respective members/class of members who are holding 90% of the shares.

As an alternative to such a meeting, written approval of the majority representing 90% of the total number of shares may be considered, without holding a meeting.

Step 5 – Holding a Meeting of the Creditors

The transferor and transferee company are necessitated to obtain the consent of creditors through a written approval or at a meeting of creditors called explicitly for the purpose of this provision. As is the case above, the notice of the meeting must be issued to the creditors before 21 days of the event, along with the following documents:

• Copy of the proposed scheme.
• The statement conveying the particulars of the merger.
• The declaration of solvency made in Form CAA 10.
• Copy of the latest audited financial statements of each company.
• Copy of the valuation report.
• Any other relevant information.

The scheme must be approved by a majority representing 9/10th in the value of the creditors or class of creditors of the respective companies indicated in a meeting.

Alternatively, the scheme may be approved in writing by the majority representing the 9/10th value of the creditors/class of creditors of the respective companies, without holding a meeting.

Step 6 – Filing Copy of the Scheme

Rule 25(4) of the Companies Act, which deals with this provision, is only applicable to transferee companies. The rule mandates these companies to file Form CAA 11 with the Regional Director within seven days of the members meet. The filing must be supported with the following documents:

• A copy of the scheme as consented by the members and creditors.
• The report of the results of each of these meetings.

In addition to this, a copy of the scheme, along with Form CAA 11 must be filed with the Registrar in Form GNL1, as well as with the Official Liquidator through manual delivery, registered post or speed post.

Step 7 – Approval of the Regional Director

• If the Registrar or the Official Liquidator has no objections/suggestions to the scheme, the Regional Director may register the same and issue a confirmation on this regard to the companies. On the other hand, any objection or suggestion may be communicated in writing to the Regional Director within a time-frame of 30 days. In the absence of any communication connected with the latter, it may be assumed that he/she does not hold an objection to the scheme.
• The Regional Director, after reviewing the objections or suggestions (or on any other grounds), may consider the scheme to be against public/creditors interest. In such instances, the company may apply to the Tribunal in Form CAA 13 within 60 days of the receipt of the scheme by stating its objections and requesting the Tribunal to consider the scheme.
• In the absence of any objection or suggestion from the Registrar and Official Liquidator or if such objection/suggestion is considered to be not sustainable, and the Regional Director conveys that the scheme is in the interest of the public or creditors, the latter may issue a confirmation order of the scheme in Form CAA 12.