Structured Biiz

FAST TRACK MERGER

Generally Merger is a time consuming process and requires the court intervention i.e., approval of the National Company Law Tribunal (NCLT). Fast Track Merger Process does not require court intervention i.e., the mandatory approval of the National Company Law Tribunal (NCLT). It requires the approval of the Shareholders and Creditors, the Registrar of Companies, the Official Liquidator and the Regional Director. The registration of such a scheme has the effect of dissolution of the Transferor Company without following the process of Winding Up.

What is a Merger?

Benefits of Fast Track Merger

Effects on Transferor Company & Transferee Company Post Merger

Definition of Fast Track Merger & Small Company

As per Section 233 of the Companies Act, 2013Fast Track Merger, a scheme of merger or amalgamation may be entered into between:

  1. Two or more Small Companies, or
  2. a Holding company and its Wholly-Owned Subsidiary Company, or
  3. Such other class or classes of Companies as may be prescribed in the rules.

As per the Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, a scheme of merger or amalgamation under section 233 of the Act may be entered into between any of the following class of Companies, namely:

  1. Two or more Startup Companies (Start Up Companies incorporated under the Companies Act, 2013 / 1956 and recognised as “Start Up” by DPIIT); or
  2. One or more Startup Company with one or more Small Company.

Section 2(85) of the Companies Act, 2013 defines “Small Company” as:

  1. It is not a Public Company.
  2. Has a paid-up share capital of not more than Rs. 50 lakh (Rupees Fifty lakh) or such higher amount as may be prescribed which shall not be more than Rs. 10 Crores (Rupees Ten Crores); or
  3. Has a turnover of which as per its last profit and loss account does not exceed Rs. 2 Crores (Rupees Two Crores) or such higher amount as may be prescribed which shall not be more than Rs. 100 Crores (Rupees One Hundred Crores)

Provided that nothing in this clause shall apply to

  1. A Holding Company or a Subsidiary Company;
  2. A Company registered under Section 8; or
  3. A Company or body corporate governed by any special Act.

 

As per the new definition of Small Companies under Union Budget 2021

Small Companies means a Company, other than a Public Company which have:-

  • Paid up Share Capital of not more than Rs. 2 Crores (Rupees Two Crores) and
  • Turnover of which as per its last profit and loss account does not exceed Rs. 20 Crore (Rupees Twenty Crores).

 

Key Changes: 

  1. Threshold increased from Rs. 50 Lakhs (Rupees Fifty Lakh) Paid up Share Capital to Rs. 2 Crores (Rupees Two Crores) Paid up Share Capital.
  2. Annual turnover also been raised from Rs. 2 Crores (Rupees Two Crore) to Rs. 20 Crore (Rupees Two Crores).

Quick Checklist for Fast Track Merger

Steps

Transferor Company

Transferee Company

Time Period

Form

What is the process to be followed for Fast Track Merger?

Articles of Association (AOA) of the respective Companies must contain a clause regarding Merger. If a Merger clause is not there in the Articles of Association, then the respective Companies needs to alter its AOA first. Memorandum of Association of the respective Companies must also contain a clause under matters which are necessary for the furtherance of objects specified under the Memorandum of Association of the Company.

  1. Prepare a Draft Scheme of Amalgamation or Merger. Hold and Conduct a Board Meeting for:

 

(a) Approval of a draft scheme of Amalgamation or Merger;

(b) Authorising any director or Company Secretary or any other person for obtaining various approvals and for execution of Scheme of Merger or Amalgamation;

(c) Preparation of the Statement of Assets and Liabilities of the Companies which states the current position of the Companies and the Auditor’s Report on the Statement.

Companies needs to issue notice of the proposed scheme in in Form CAA-9 to invite objections or suggestions, if any, within 30 days of issuing the notice from the Registrar of Companies (ROC) and Official Liquidators (OL) and to persons affected by the scheme under Section 233 (1) (a)  with the Scheme of Merger and the other requisite documents.

The objection or suggestions shall be given by ROC, OL or Person affected by the Scheme within 30 days of serving the notice to the Regional Director and to the Authorized Representative of the Transferor Company.

Before convening the meeting of members and creditors, a Declaration of Solvency shall be filed by each of the Companies involved in the Scheme of Merger or Amalgamation in Form No.CAA.10 along with prescribed fee and the attachments.

After receiving any objections or suggestions, a Board meeting must be called and held in order to amend the draft Scheme and approve the amended Scheme and consider the day, date, time and place for General Meeting and Creditors Meeting. If no such objections or suggestions are received, then the scheme needs to be approved without alteration and do the further proceeding for the Meeting of Members and Creditors.

The notice of the meeting to the members and creditors shall be send along with requisite attachments.

Conduct General Meeting and get the scheme approved by the respective members or class of members at a general meeting holding at least 90 per cent of the total number of shares. (Section 233 (1) (b) read with Rule 25 (3))

Conduct Creditors Meeting by giving a notice of 21 days along with the requisite attachments and get the scheme approved by majority representing nine-tenths in value of the creditors or class of creditors of respective Companies or otherwise approved in writing. (Section 233 (1) (d) read with Rule 25 (3))

The Transferee Company shall, within 7 (seven) days after the conclusion of the meeting of members or class of members or creditors or class of creditors, file a copy of the scheme as agreed to by the members and creditors, along with a report of the result of each of the meetings in Form No. CAA.11 with the

(a) Regional Directors

(b) Registrar of Companies

(c) the Official Liquidator

The objections or suggestions shall be given by ROC and OL to the RD within 30 days of the filing the Form CAA-11.

Where no objection or suggestion is received to the scheme from the Registrar of Companies and Official Liquidator or where the objection or suggestion of Registrar and Official Liquidator is deemed to be not sustainable and the Regional Directors is of the opinion that the scheme is in the public interest or in the interest of creditors, the Regional Directors shall issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA-12. (Section 233 (3) read with Rule 25 (5))

Note: If no such communication is made, it shall be presumed that he has no objection to the scheme.

Where objections or suggestions are received from the ROC and OL and the Regional Directors is of the opinion, whether on the basis of such objections or suggestions or otherwise, that such a scheme is not in public interest or in the interest of the creditors, it may file an application before the Tribunal in Form CAA-13 within a period of 60 days of the receipt of the scheme stating its objections or opinion and requesting that the Tribunal may consider the scheme under section 232 of the Companies Act, 2013. (Section 233 (5) read with Rule 25 (6))

On receipt of an application from the Regional Directors or from any person, if the Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing such order as it deems fit. (Section 233 (6))

Note: If the Regional Directors do not have any objection to the scheme or it does not file any application under this section before the Tribunal, it shall be deemed that it has no objection to the scheme.

The confirmation order of the scheme issued by the Regional Directors or Tribunal shall be filed, within 30 days of the receipt of the order of confirmation, in Form INC-28 along with the fees as provided under Companies (Registration Offices and Fees) Rules, 2014 with the Registrar of Companies having jurisdiction over the transferee and transferor companies respectively. (Section 233 (7) read with Rule 25 (7))