In this article I have tried to provide in summarized form, the content of a Scheme of Amalgamation. I have tried to cover all the basic clause’ concerning amalgamation matters. Normally, a Scheme runs into tens of pages. To keep it small, I have provided only the basic headings in most places. Any Clause that is interesting and important have been framed in entirety and marked in yellow background for ready reference
A general Scheme of Amalgamation is as under:
SCHEME OF AMALGAMATION OF ABC LIMITED WITH XYZ LIMITED
1. DEFINITIONS
The definitions for words like Act, Appointed Date, Effective Date, Record Date, Scheme, Transferee Company, Transferor Company and Undertaking are given in this clause.
The Definition of Appointed Date, Effective Date and Undertaking are crucial in the matter and should be well framed before finalizing them.
2. SHARE CAPITAL
(a) The Share Capital of ABC Limited, the transferor company as on 31st March, 2010.
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(b) The Share Capital of XYZ Limited, the transferee company as on 31st March, 2010.
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SUBSCRIBED AND PAID UP |
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3. TRANSFER AND VESTING
This would contain sub-clauses and provide for the following:
a) Transfer and vesting of Undertaking (all assets)
b) Transfer and vesting of Licences, Permissions, Rights, Approvals
c) Transfer and vesting of all debts, liabilities etc
d) Taxes paid by the Transferor Company
e) Transfer and vesting of investments
4. CONTRACT, DEEDS, BONDS AND OTHER INSTRUMENTS:
This is a general clause and provides for what happens to the contacts, deeds, bonds and other instruments of the Transferor Company upon the amalgamation.
5. LEGAL PROCEEDINGS:
This is a general clause stating that all legal matters of the transferor company shall be enforced by or against the Transferee Company.
6. CONDUCT OF BUSINESS BY TRANSFEROR COMPANY TILL EFFECTIVE DATE:
This clause states that
(a) The Transferor Company shall carry on all its businesses in trust for the Transferee Company.
(b) All the profits or losses of the Transferor Company shall be treated as those of the Transferee Company.
(c) The Transferor Company undertakes to carry on its business with reasonable diligence and shall not alienate, charge or encumber or otherwise deal with the assets or any part thereof except in the ordinary course of its business.
(d) The Transferor Company shall not undertake any additional financial commitments without the written consent of the Transferee Company, except in the ordinary course of business.
(e) The Transferor Company shall not, without the written consent of the Transferee Company, undertake any new business.
(f) Save as specifically provided in this Scheme, neither the Transferor Company nor the Transferee Company shall make any change in their capital structure except by mutual consent of the Board of Directors of both the companies.
(g) The Transferor Company shall not vary the terms and conditions of the service of its staff, workmen and employees except in the ordinary course of business.
7. OPERATIVE DATE OF THE SCHEME:
The Scheme, although operative from the Appointed Date, shall become effective from the Effective Date.
8. TRANSFEROR COMPANY’S STAFF, WORKMEN AND EMPLOYEES:
(a) All employees of the Transferor Company shall become employees of the Transferee Company without any break or interruption in service and on terms and conditions as to remuneration not less favourable than those subsisting with reference to the Transferor Company.
(b) To provide for the Gratuity Fund, Provident Fund etc of the employees of the Transferor Company
9. ISSUE OF SHARES BY THE TRANSFEREE COMPANY
(a) Upon the Scheme coming into effect, and without any further, act or deed, the Transferee Company shall, in consideration of the amalgamation, issue and allot:
(i) To every equity shareholder of the Transferor Company holding fully paid-up equity shares in the Transferor Company and whose names appear in the Register of Members of the Transferor Company on the Record Date, _____ Equity Shares of Rs. 10/- each in the Transferee Company credited as fully paid-up for every _______ equity shares of Rs. 10/- each fully paid-up held by such member in the capital of the Transferor Company.
(ii) To every preference shareholder of the Transferor Company holding fully paid-up preference shares in the Transferor Company and whose names appear in the Register of Members of the Transferor Company on the Record Date, ______ 5% Preference Shares of Rs. 100/- each in the Transferee Company credited as fully paid-up for every ______ 5% preference shares of Rs. 100/- each fully paid-up held by such member in the capital of the Transferor Company. Nothing contained in this Clause shall affect the redemption on maturity of any of the Preference Shares of the Transferor Company prior to the Effective Date.
The said new Equity Shares shall rank for voting rights and in all other respects pari-passu with the Equity Shares of the Transferee Company.
(b) The Share Certificates in relation to the shares held by the Equity and Preference Shareholders of the Transferor Company whose names are recorded in the Register of Members of the Transferor Company on the Record Date, fixed by the Board of Directors of the Transferee Company, shall be deemed to have been automatically cancelled and be of no effect on and from such Record Date, without any further act, instrument or deed.
(c) In so far as the equity/ Preference shares of the Transferor Company held by the Transferee Company, if any, on the Effective Date are concerned, such shares would be cancelled and to that extent the Transferee Company is required to issue less number of shares.
(d) In so far as the equity/ Preference shares of the Transferee Company held by the Transferor Company, if any, on the Effective Date are concerned, such shares would be cancelled on the effective date.
(e) No fractional certificates shall be issued by the Transferee Company in respect of fractional entitlements, if any, to any Member of the Transferor Company. The Board of Directors of the Transferee Company shall, instead consolidate all such fractional entitlements and thereupon issue and allot equity shares in lieu thereof to the Trust or a Director or an Officer of the Transferee Company or such other person as the Transferee Company shall appoint in this behalf who shall hold the shares in trust on behalf of the Members entitled to fractional entitlements with the express understanding that such Trust, Director(s) or Officer(s) or person shall sell the same to such person or persons and at such prices as it/he/they deem fit, and pay to the Transferee Company, the net sale proceeds thereof, whereupon the Transferee Company shall distribute such net sale proceeds to the Members of the Transferor Company in proportion to their respective fractional entitlements.
(f) For the purpose as aforesaid the Transferee Company shall, if and to the extent required, apply for and obtain the requisite approvals including that of SEBI, Reserve Bank of India and other appropriate authorities concerned for issue and allotment by the Transferee Company to the respective members of the Transferor company of the Equity Shares in the said re-organised share capital of the Transferee Company in the ratio as aforesaid.
(g) The Equity Shares of the Transferee Company issued in terms of the Clause 9(a) above shall be issued in physical form or demat form as may be opted by the shareholders and shall be admitted to be listed and/or admitted to trading on the Stock exchange/s, where the shares of the transferee company are presently listed.
10. ACCOUNTING TREATMENT IN THE BOOKS OF TRANSFEREE COMPANY
(a) The assets and liabilities of the Transferor Company shall be at the values as on 1st April, 2010.
(b) To contain provisions for discharge of liabilities of the Transferor Company.
(c) To contain provisions for balance/s appearing under the head “Miscellaneous Expenditure of the Transferor Company.
(d) In case of any difference in accounting policy between the Transferor company and the Transferee Company, the impact of the same till the amalgamation will be quantified and adjusted in the Revenue Reserve(s) as mentioned earlier to ensure that the financial statement of the Transferee Company reflects the financial position on the basis of consistency in the accounting policy.
(e) To contain provisions for transfer of balance lying in the Profit and Loss Account' and Reserves and Surplus Account' of the Transferor company.
(f) The difference in the value of the net assets of the Transferor Company as on 01.04.2010 and the consideration value determined pursuant to this Scheme, if any, shall be accounted for in the books of the Transferee Company by adjusting / adding the same with the General Reserve of the Transferee Company and shall be utilised for all the purposes for which General Reserve can be utilised in accordance with the Companies Act, 1956 and other legislations, for the time being in force.
(h) Notwithstanding the above, the Board of Directors of the Transferee Company, is authorised to account any of these balances in any manner whatsoever, as may be deemed fit.
12. AMENDMENT TO MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE TRANSFEREE COMPANY.
12.1 Upon coming into effect of the Scheme, the Objects Clause of the Memorandum of Association of the Transferee Company shall stand amended and the following clauses shall be added as Clause No. (1A) to (1C) to the Objects Clause of the Memorandum of Association of the Transferee Company :
12.2 Upon coming into effect of the Scheme, the Authorised Share Capital of the Transferor Company, as mentioned in Clause 2 (a) above, or such amount as may be on the effective date, shall be added to the Authorised Share Capital of the Transferee Company, as on the effective date, without any further act or deed and without any further payment of the stamp duty or the registration fees and Clause V of the Memorandum of Association of the Transferee Company shall be replaced accordingly.
12.3 Upon coming into effect of the Scheme, before clause 3A of the Articles of Association of the Transferee Company, the following clause shall be inserted as clause 3 to the Articles of Association:
12.4 CHANGE OF NAME
Upon the Scheme being effective, the name of the Transferee Company shall be changed to ‘ABC Limited’.
12.5 Under the accepted principle of Single Window Clearance, it is hereby provided that all the above referred changes, viz. Change in the Object Clause, Capital Clause and Name Clause shall become operative on the scheme being effective by virtue of the fact that the Shareholders of the Transferee Company, while approving the scheme as a whole, have also resolved and accorded the relevant consents as required respectively under Section 17, 31, 94, 81(1A) and 21 of the Companies Act, 1956 or any other provisions of the Act and shall not be required to pass separate resolutions as required under the Act.
12.6 Upon the Scheme being effective, the Transferee Company shall be entitled to commence and carry on the business and activities currently being carried on by the Transferor Company, without any further act or deed with effect from the appointed date. It is clarified that there will be no need to pass a separate Shareholders' resolution as required under Section 149(2A) of the Act.
13. DECLARATION OF DIVIDEND
This should be general clause giving the right to both the companies to declare and pay dividend during the period when the merger is under process. The right of the shareholders of the transferor company in the transferee company would be created only upon issuance of shares.
14. DISSOLUTION OF TRANSFEROR COMPANY:
On the Scheme becoming effective, the Transferor Company shall be dissolved without being wound up.
15. APPLICATIONS TO HIGH COURT
The Transferor Company and the Transferee Company shall with all reasonable dispatch make applications under Sections 391 and 394 and other applicable provisions of the Act to the High Court of
16. MODIFICATION / AMENDMENT TO THE SCHEME
This clause is important and should be properly drafted. Rights should be given to the Board to make modifications in the Scheme.
17. SCHEME CONDITIONAL ON APPROVAL / SANCTIONS
The Scheme is conditional on and subject to:
(a) the approval to the Scheme by the requisite majorities of the shareholders and secured and unsecured creditors of the Transferor Company and the shareholders of the Transferee Company.
(b) the sanction of the High Court of Gujarat at Ahmedabad/ National Company Law Tribunal, under Sections 391 and 394 of the Act, in favour of the Transferor Company and the Transferee Company and to the necessary Orders under Section 394 of the Act, being obtained.
(c) filing of the order obtained from the High Court of Gujarat at Ahmedabad/ National Company Law Tribunal, under Sections 391 and 394 of the Companies Act, 1956 with the Registrar of Companies,
(d) any other sanction or approval of any concerned authorities, as may be considered necessary and appropriate by the respective Board of Directors of the Transferor Company and the Transferee Company, being obtained and granted in respect of any of the matters for which such sanction or approval is required.
18. EXPENSES CONNECTED WITH THE SCHEME AND INCIDENTAL TO THE COMPLETION OF THE AMALGAMATION
All costs, charges and expenses of the Transferor Company and Transferee Company in relation to or in connection with the Scheme and of carrying out and completing the terms and provisions of the Scheme and/or incidental to the completion of Amalgamation of the Transferor Company in pursuance of the Scheme shall be borne by the respective companies.
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