Section 233 of the Companies Act, 2013 adopted a new definition of fast track acquisition for Independent Businesses and the integration of holding firms with their wholly owned subsidiaries. It is the first major change to the mergers and amalgamations system in the past six decades that has underserved the need for administrative simplification. Merger is a restructuring tool that helps businesses expand and diversify their business and achieve their underlying goals.
Merger is an agreement under which one or more separate entities combine their name with another in order to establish a new and different name. Fast Track Merger is a recent term that is implemented under the Companies Act, 2013 in India. In fact, Fast Track Merger is a special concept, as it does not require National Company Law Tribunal (NCLT) consent for the merger. Consequently, acceptance by the Provincial Directors of authority based on information from the Registrar of Companies (ROC) and Official Liquidator is necessary.
Meaning of Merger
Merger means a merger of two or more companies into one; the intended result is not only to combine the assets and liabilities of the different entities, but also to consolidate these entities into one entity. A merger is the negotiated combining of two entities into one single legal body on roughly equitable terms. Mergers are most often undertaken to gain market share, decrease operational costs, extend into new markets, combine similar goods, raise sales, and boost earnings-all of which would help the owners of corporations. Following a merger, the new company’s shares are distributed to existing shareholders of both original companies.
Fast Track Merger
Fast Track Merger was implemented with a view to reducing NCLT’s lengthy process for the specified firms. These specified companies are either small businesses or closely related group companies, such as holding companies and wholly owned subsidiaries. These businesses are small in nature and involve relatively less scrutiny. Under Section 233 of the Companies Act, 2013, a merger or amalgamation scheme may be concluded between:
- two or more small companies
- a holding company and its wholly-owned subsidiary
- any other class or class of companies as may be prescribed, subject to the prescribed procedure.
According to the Companies Act, 2013, a Small Corporation means a company other than a public company: –
- whose paid-up share capital does not surpass fifty lakh rupees or the sum specified which is not more than ten crore rupees
- The revenue of which, according to profit and loss report for the financial year immediately preceding it, does not exceed two crore rupees or the sum specified which does not exceed one hundred crore rupees
Why Should Everyone opt for Fast Track Merger?
In India the process of mergers and acquisitions is court-driven, long-drawn and therefore problematic. The process may be initiated through joint agreements between the two parties, but that is not enough to provide it with legal cover.
The High Court’s sanction is needed for it to come into effect. The High Court’s sanction is needed for it to come into effect. The Government has adopted Section 233 involving the integration of two or more small enterprises, the holding and its wholly-owned subsidiary, such types of companies as may be prescribed. Subsequent advantages can be accessed by Section 233 i.e. Fast Track Merger:
1. No Compulsory NCLT approval required.
2. The Need of Public Ads.
3. No meeting summoned by the Court.
4. More Leadership Burden.
5. Hearing Series may be avoided.
6. Registration of the scheme shall be considered to the consequence of dissolving the transferor firms without winding up the operation.
7. Cost comparatively less.
Procedure of Fast Track Merger
- Both the Transferor Company and Transferee Company are approved for merger through their Articles of Association. When they should not intend to amend their Articles of Association. Merger is allowed in compliance with the Companies’ Object Clause in Association Memorandum.
- Under this procedure, both the transferee and the transferee corporation need to hold a board meeting to approve the draft merger scheme. For each company’s corresponding board meeting, an appropriate motion may be passed to allow anyone to perform such actions and things that could be considered necessary and expedient for relation to this.
- The transferee and the transition firm shall submit the draft scheme proposing the merger with the IROC where the respective company registration office is located and
(ii) Official Liquefier
(iii) or people impacted by the Scheme
To seek complaints or recommendations from them in Type CAA-9.
- Pursuant to section 233(1)(C) of the Companies Act, 2013 read in accordance with Rule 25(2) of the Companies (Compromises, Arrangements and Amalgamation) Rules 2016, each company involved in the merger shall submit to ROC its respective declaration of solvency in Form CAA-10.
- Under the terms of Section 233(1)(b) of the Act read in Rule 25(3), all companies shall seek consent for the scheme from members owning at least 90 per cent of the total number of shares. The companies shall also consider the objections and suggestions received by ROC and OL at their respective general meeting.
- Under Section 233(1)(d) of the Act, read in accordance with Rule 25(3), the companies shall obtain the approval of their creditors in any of the manner described below:
- By meeting: the majority representing the 9/10th value of the creditors or the class of creditors of the respective companies shall also approve such scheme.
- Such scheme shall also be approved in writing by a majority representing the 9/10th value of creditors or the class of creditors of the companies concerned.
- Under the provisions of Rule 25(4), the transfer company shall require the following documents to be filed with the Regional Director in Form CAA11 within 7 days of the conclusion of the meeting of members or class of members or creditors or class of creditors.
- Business Registrar and Official Liquidator can raise objections or recommendations to the Regional Manager within 30 days of receipt of the scheme if any. However, if there have been no complaints or recommendations, it is believed that they have no opposition to the plan.
History of Fast Track Merger
Just before Section 233 of the 2013 Act was informed, Courts strategy was inclined to encourage rapid mergers between such classes of firms. For example, in conjunction with schemes involving the amalgamation of wholly owned subsidiaries with their holding companies, various High Courts have in the past allowed the holding company to dispense with the obligation to begin independent litigation before its High Court of jurisdiction. As no compromise or arrangement between the holding company and its shareholders and creditors has been proposed.
Benefits of Fast Track Merger:
- Cross Border Integration is expected to accelerate internal transformation and consolidation across boundaries.
- Exit options for minority shareholders are supposed to minimize lawsuits and unnecessary lawsuits and intervention by the Income Tax Department, while Sectoral Regulators will protect their interest at the risk of lengthy procedures.
- Section 230 to 232 of the Merger & Amalgamation Act provides for very time-consuming activity, because it includes clearance from many regulatory bodies and all types of companies have to go through that route.
The system for fast track integration is certainly a positive change. By eliminating the obligation for any category of firms to join the Tribunal, the legislation aimed to eliminate procedural hurdles in court cases, resulting in quicker disposition of projects, decreasing the pressure on the courts and the costs and services of the businesses concerned. However, the success of this route depends primarily on how proactive the CG is in its approach to fast track mergers.
- What does it mean by the term Fast Track Merger?
- What is the procedure of Fast Track Merger?
- Why should everyone go for Fast Track Merger?
- What does Section 233 of Companies Act, 2013 says?
- To what extent is Fast Track Merger successful?