merger process(7)

8/3/2019 Merger Process(7)

1/33


2/33

Introduction Procedural formalities involved

Top management commitment towardsmergers

Search for a merger partnerNegotiating with merger partnerSteps for merger


3/33

Mergers are regulated under the provisions of the Companies Act,1956

Agreement between transferor and transferee does not providelegal cover unless it carries the sanction of company court under

section 391 of the Companies Act Procedure of merger is complex involving compromises and

arrangements between the company and its creditors, betweenthe company and its members, safeguard of public interest andadherence to public policy.

All these aspects are looked after by the Central Governmentthrough official liquidator on Company Law Board, Department ofCompany affairs and the court has to be satisfied of the same


4/33

Top mgtcommitments

Search for amerger

partner

Negotiating withmerger partner

Steps for merger


5/33

Scheme of merger Approval of Board of directors for the scheme Approval of Scheme by financial institutions Intimation to stock exchange about proposed

amalgamation Application to court for directors

High courts directions for members meeting Approval of registrar of High Court Despatch of notices to members/shareholders Advertisement of notice of members meetings Confirmation about service of the notice


6/33

Holding the shareholders meeting and passing theresolution

Filling the resolution with ROC Submission of joint petition to court for sanctioning

the scheme Issue of notice to Regional Director Company Law Board

under Sec 394-A Hearing of petition and confirmation of scheme Filling the courts order with ROC by both the companies Dissolution of transferor company


7/33

Transfer of Assets and Liabilities Allotment of shares to shareholders of transferor

company Listing the shares at stock exchange Preservation of books and papers of amalgamated

company

Post merger obligations


8/33

Supply of input andmarket for output

product diversification

Research andDevelopment

establishments

Making availabletechnical personnel

and experiencedskilled manpower

Providing newdistribution channelsand market segments

Adding up newproducts and improvedtechnological process


9/33

USING THEIR OWN CONTACTS

Using the contacts of merchantbankers, financial consultantsand other agencies


10/33


11/33

Taxationaspects

Profitability andvaluation

Purpose, shapeand date of

merger

Developmentplan of company

after merger

Legal aspects


12/33


13/33

Scheme of

merger

Approval of Board ofDirectors for the

scheme

Approval of thescheme by

specialized financial

institutions/ banks/trustees for

debenture holders

Intimation to stockexchange about

proposedamalgamation

Application tocourt for directions


14/33

It should be prepared by the companies which have arrived at aconsensus to merge. Scheme should generally contain the followinginformation:

Particulars about transferee and transferor companies

Appointed data

Main terms of transfer of assets from transferor to transferee.

Main terms of transfer liabilities from transferor to transfereecovering any conditions attached to loans/ debentures/ bonds/other liabilities


15/33

Effective date when the scheme will come into effect

Conditions as to carrying on the business activities by transferor betweenappointed date and effective date.

Description of happenings and consequences of the scheme coming intoeffect on effective date

Share capital of transferor company specifying authorized capital, issuedcapital and subscribed and paid up capital.

Surrender of shares by shareholder of transferor company for exchangeinto new share certificates

Conditions about payment of dividend, ranking of equity shares, pro ratadividend declaration and distribution


16/33

Treatment on effective data of any debit balance of

transferor company balance sheet

Commitment of transferor and transferee companiestowards making applications/ petitions under section391 and 394 and other applicable provisions of theCompanies Act, 1956 to their respective High courts

Description of revocation/ cancellation of the scheme inthe absence of approval of different agencies, notgranted by concerned authorities

Statement to bear costs, etc. in connection with thescheme by the transferee company.


17/33

Application under section 391(1) to the high court havingjurisdiction over the registered office of the company foran order calling a meeting of its members.

The application shall be made by a Judges summons inform no. 33 supported by an affidavit in form no.34.

Documents should be submitted with Judges Summons: A true copy of the company's Memorandum and Articles

A true copy of the Companys latest audited balance sheet A copy of the board resolution which authorizes theDirector to make the application to the High Court.


18/33

High court directions formembers meeting

Approval of registrar of highcourt to notice for calling the

meting of members/ creditors

Dispatch of notices tomembers/ shareholders

Advertisement of notice of

members meetings

Confirmation about service ofthe notice


19/33

High Court give directions about fixing thedate, time and venue for the members

meeting and appoint an Advocate Chairmanto preside over the meeting and submit areport to the court


20/33

The transferor as well as the transfereecompanies shall submit for approval to theregistrar of the respective High courts the draft

notice/s calling the meetings of the members inform no. 36 together with the scheme ofarrangements and explanations and form ofproxy in form no. 37 of the companies rules

After approval it should got signed by thechairman appointed for the meeting by the HighCourt.


21/33

Notice could be dispatched to the membersunder certificate of posting at least 21 days

before the date of meeting


22/33

RULE 74 of the companies rule provides thatthe notice is to be advertised 21 days before

the date fixed for meeting The advertisement shall be in form no. 38

appended to the companies(court) rules.


23/33

Holding of the shareholdersgeneral meeting and passing

the resolutions

Filing of resolutions of generalmeeting with Registrar of

Companies (30 days)

Submission of report of thechairman of the general

meeting to court (7 days)

Submission of joint petition tocourt for sanctioning the

scheme

Issue of notice to RegionalDirector Company Law Board

under Section 394-A


24/33

Merger Scheme should be approved by themembers, by a majority in number of

members present in person or on proxy andvoting on the resolution and this majoritymust represent at least 3/4th in value of theshares held by the members who vote in thepoll.


25/33

The court will fix date for hearing of thepetition. The notice of the meeting should be

advertised not less than 10 days before thedate fixed for the hearing. The petition is to be made in Form no. 40 of

Companies Rules.


26/33

Hearing of petition and confirmation of scheme

Filling of courts order with ROC by both the Companies(30 days)

Dissolution of transferor Company [Sec 394(1)]

Transfer of Assets and Liabilities [Sec 394(2)]

Allotment of share to shareholders of transferorcompany


27/33

Court will hear objections first and if there is noobjection to the merger scheme from RegionalDirector or from any other person who is entitled tooppose the scheme, the court may pass an orderapproving the scheme of amalgamation in Form No.41 or Form no. 42

The court may also pass order directing that all theproperty rights and powers of the transferor companyspecified in the schedules annexed to the order betransferred without further act or deed to thetransferee company and that all the liabilities andduties of the transferor company be transferredwithout further act or deed.


28/33

Different situations where allotment could be giveneffect to:

Where transferor company is not listed company, the

allotment could take place without setting the recorddate or giving any notice to shareholders. Where transferor company is a listed company, the

stock exchange is to be intimated of the record dateby giving at least 42 days notice .

Where allotment to the non resident Indians isinvolved and permission of RBI is necessary, theallotment will take place only on receipt of RBIpermission


29/33

Listing of shares at Stock exchange

Court order to be annexed tomemorandum of transferee

company [Sec 391(4)]

Preservation of books and papers ofamalgamated company [Sec 396A]

Post merger Secretarialobligations


30/33

POST MERGEROBLIGATIONS

Filing of returnswith ROC

Transfer of investments oftransferor company in the

name of the transferee

Intimating banks andfinancial institutions,creditors and debtors

Restructuring oforganization and

management


31/33

Corporate Mergers, Amalgamations &

Takeovers by Dr. J.C. Verma Mergers and Acquisitions by S. Shiva Ramu Google


32/33


33/33