Mergers and acquisitions involve the process of combining two companies into one. The goal of combining two or more businesses is to try and achieve synergy – where the whole (new company) is greater than the sum of its parts (the former two separate entities). Mergers occur when two companies join forces. Acquisitions occur when one company buys another company and folds it into its operations.
Chapter XV of the 2013 Act, Sections 230 to 240 deal with “Compromises, Arrangements and Amalgamations.” In this chapter, the Act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations; however, other provisions are also attracted at different stages of the process. The dissolution of company/companies involved in a merger takes place without winding up.
Procedure for amalgamation
The memorandum of association of the companies seeking to merge, should give power to companies to amalgamate. Also, the creditors of the companies must approve the merger scheme. Notice of merger along with merger proposal and valuation report etc. needs to be served upon creditors, shareholders, and various regulators (MCA, RBI, CCI, Stock exchanges of listed companies, IT authorities and other sector authority likely to be affected by merger.) Shareholders and creditors are given option to cast their vote through postal ballot. Tribunal can order meeting of creditors if application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement for merger or amalgamation. Objections can be raised by shareholders who hold 10% or more equity or creditors whose outstanding debt is 5 % or more of the total debt as per last audited balance sheet. Prior certification from auditors saying accounting treatment is in consonance with accounting standards needs to be filed with stock exchanges (for both listed and unlisted companies).
Board of Directors need to approve the draft proposal after which application will be made to respective High Court (State where registered office is located) in Form no. 36. After the approval mentioned above, the scheme will have to be filed with the Official Liquidator, RoC and the Central Government. In the event of there being “no objection,” this will be deemed as approve. The 2013 Act has established National Company Law Tribunal which will handle all the matters related to company law and replace the HCs.
After the Court order, its certified true copies will be filed with the Registrar of Companies.
The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date. As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.
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