Fast Track Mergers of Smaller Companies

Fast track merger applicability:

The class of companies that can avail the benefit of fast track merger:

1. Two small companies

2. Holding company and its wholly-owned subsidiary company.

Fast track merger applicability:

The class of companies that can avail the benefit of fast track merger:

1. Two small companies

2. Holding company and its wholly-owned subsidiary company.

Fast track merger of small companies:

Since the fast track merger scheme only applies for small companies, it is popularly be known in the corporate world as a fast track merger of small companies. Section 285 categorize small companies on the following criteria:

• The company should not be a public company.
• Paid-up share capital(money acquired by the company in exchange for its shares) should not be more than INR 50 lakhs.
• Turnover less than 2 crores in the last financial year.

Fin-bites: Fast track merger may also be obtained by other prescribed class/classes of companies. In such cases, the paid-up share capital limit is 10 crores and the turnover limit is set as 100 crores.

Fast track merger of Holding companies & its subsidiaries:

• The company can be public, private or a section 8 company.
• Merging with multiple wholly-owned subsidiaries requires multiple applications.

Benefits of fast track merger:

• Non-requirement of approval from NCLT(National Company Law Tribunal)
• Not mandatory to issue Public Advertisement
• Reduced administrative burden
• Avoidance of series of court hearings
• The court convened meeting has been excluded
• Lesser costs involved

Preliminary procedure:

The Articles of Association(AOA) of both the transferor and the transferee companies must permit for mergers and amalgamations. If not, a provision has to be created for the same. A draft scheme for a fast track merger to be made.

Fast track merger procedure:

1. Convening of Board Meeting:

A meeting to be convened with the board members to discuss the following :

• Approval of the scheme of fast track merger.
• To schedule the shareholder’s meeting.
• To schedule the creditor’s meeting.

2. Issuing of Notice:

Post the board meeting, upon agreement of all the board members, a notice of the proposed scheme must be submitted by the transferor and the transferee, along with a copy of the scheme to:

Registrar of Companies(ROC) where the registered office of the corresponding companies are located(and)Official Liquidator(or)Person affected by the scheme

Form CAA-9 must be filed by inviting any objections or suggestions from them.

3. Filing Declaration of Solvency with the ROC:

Both transferor and the transferee must file the declaration of solvency to the Registrar of companies(ROC) in Form CAA-10, before convening the meeting of members and creditors.

4. Convening of the meeting of members or shareholders:

Both transferor and transferee must host a shareholder meeting. A notice for the meeting has to be sent to the members before 21 days of the schedule and it should hold the following information:

• Copy of the scheme
• The statement containing details of the merger
• Declaration of solvency
• Copy of latest audit statements
• Copy of valuation report

Any other relevant information shall be added.

The scheme proposes should be approved by the respective members/class of members holding more than 90% of the shares. In some cases, a written agreement from the members holding more than 90% of the shares can be accepted without hosting the meeting.

5.Convening of the meeting of creditors:

A notice of the meeting to be issued before 21 days and the meeting to be held for the consent of the creditors. As before, the notice should contain the following:

• Copy of the scheme
• The statement containing details of the merger
• Declaration of solvency
• Copy of latest audit statements
• Copy of valuation report
• Any relevant information

The scheme proposes should be approved by the respective creditors/class of creditors holding more than 90% of the shares. In some cases, a written agreement from the creditors holding more than 90% of the shares can be accepted without hosting the meeting.

6.Filing the Scheme:

This provision, as governed in Rule 25(4) of the Companies Act, is only applicable to the transferee company. Form CAA-11 is to be submitted to the Regional Director within seven days of the end of members or creditors’ meeting. The following are the documents to be filed:

• Copy of the scheme
• Report of the result of all the meetings conducted

Additionally, a copy of the scheme and Form CAA-11 is to be submitted with the Registrar in Form GNL1 and also to the official liquidator through post or in-person delivery.

7. Approval by the Regional Director:

The scheme is to be approved by the regional director.

• If the registrar and the official liquidator have no objections/suggestions to the scheme the registrar will report the same and will issue a confirmation to the merger.
• If the registrar or the official liquidator has any objections/suggestions a write-up will be forwarded to the Regional Director by them within thirty days. If no such write-up is communicated it will be assumed as Nil obligations and the merger will be processed.
• If the regional director deems the objections/suggestions to be not in the interest of the public/creditors. In such a case, the company may apply to the tribunal in Form CAA-13, describing the objections and ask the tribunal to consider the merger scheme.
• If the regional director deems the objections to be unfit, then he shall issue the confirmation of the scheme with Form CAA-12.

8. Filing of confirmation order:

Both the transferor and the transferee must file a copy of the confirmed order of the scheme of fast track merger to the office of ROC, in form INC-28. The ROC will issue a confirmation and communicate to the ROC where the transferor is registered.