Sai Krishna (Articled Assistant) (42 Points)
24 December 2009Can anyone help me regarding statutory procedural aspects to be followed for merging two companies.
CourseCart.in
(Mentor at SHAYVIDZ Academy)
(3756 Points)
Replied 27 December 2009
PROCEDURE
1. The proposal will be discussed between the two companies. The transfer date
will be decided upon.
2. One or more firms of auditors (including auditors of the company) will be
requested to make valuation and arrive at the ratio of exchange.
3. Draw up the following documents—
(i) scheme of amalgamation in consultation with the company's solicitors;
(ii) Explanatory statement under section 393;
(iii) Petition under section 391(1);
(iv) Letters to shareholders;
(v) Notice to stock exchanges.
4. The scheme of amalgamation and the ratio of exchange will be approved by the
respective Boards. [preferably on the same day] Authorise directors and
company secretary to take necessary action.
5. If the shares of the company are listed, the stock exchanges concerned will be
advised immediately after the meetings of the Boards.
6. Financial institutions and banks concerned will be formally advised of the
proposal and their consent will be sought.
7. It may be desirable to consult them informally before hand and obtain their
approval in principle, where their shareholdings are large.
8. An application to the High Courts concerned will be made under the Companies
(Court) Rules, 19591 for an order by Judge's summons convening the meetings
of the members of the transferor and transferee companies to approve the
scheme.
9. Where both the companies are situated in the same State, a joint application may
be made by the transferor and the transferee company. [Mohan Exports India
Ltd. v Tarun Overseas (P) Ltd. (1994) 3 Comp LJ 193] But it may also be stated
here that the Karnataka High Court is reported to have stated the opposite view
that even where two companies are situated in the same State, each company
should file a separate petition. [Electro Carbonium (P) Ltd. v Electric Materials
Co. (P) Ltd. (1979) 49 Comp Cas 825 (Kar)]
10. It was held in the case of Larsen & Toubro Ltd., In re (2004) 60 CLA 555
(Bom): (2004) 121 (Comp Cas 523 (Bom) that there could be a combined
petition for demerger of one of the undertakings of the transferor company, for
the transfer of the demerged undertaking of a subsidiary and for the reduction in
the capital of the transferor company.
11. Where the registered offices of the two companies are situated in different
States, separate applications will be made to the two High Courts concerned.
12. The summons will be in Form 33 of the Court Rules and the affidavit in support
thereof in Form 34. The following documents shall be enclosed:
(i) a true copy of the memorandum and articles of association (of both the
transferor and transferee companies)
(ii) a true copy of the proposed scheme of amalgamation
(iii) a true copy of the latest balance sheet and profit and loss account
13. Upon hearing the summons, the court will give directions for holding the
meeting in respect of the following matters:
(a) determining the class or classes of creditors and/or of members whose
meeting(s) have to be held for considering the proposed compromise or
arrangement;
(b) fixing the time and place of such meeting;
(c) appointing a Chairman or Chairmen for the meeting(s) to be held;
(d) fixing the quorum and the procedure to be followed at the meeting(s)
including voting by proxy;
(e) determining the values of the creditors and/or members, or the creditors or
members of any class, as the case may be, whose meetings have to be held;
(f) notice to be given of the meeting(s) and the advertisement of such notice;
(g) the time within which the Chairman of the meeting is to report to the Court
the result of the meetings; and
(h) such other matters as the Court may deem necessary. [See Rule 69]
14. Where a company has two classes of members, namely preference and equity,
separate meetings of each class will be convened.
15. Companies concerned will take steps to get the notices and statements under
section 393 of the Act settled, printed and issued.
16. Print proxy forms in Form 37 and send to members.
17. Send notice in Form 36 to members individually in the name of the chairman of
the meeting concerned as required by rule 73. Enclose the following:
(i) a copy of the scheme;
(ii) explanatory statement;
(iii) form of proxy; and
(iv) a statement setting forth the terms of the amalgamation and explaining its
effect, and in particular, stating any material interests of the directors,
managing director, or manager of the company, whether in their capacity as
such or as members or creditors of the company or otherwise, and the effect
on those interests, of the amalgamation, if, and in so far as, it is different
from the effect on the like interests of other persons.
18. The notices will be advertised in such newspapers and such manner as the court
may direct not less than 21 clear days before the date of the meeting. The
advertisement will be in Form 38. In every notice which is given by
advertisement, there shall be included either such a statement as aforesaid or a
notification of the place at which and the manner in which creditors or members
entitled to attend the meeting may obtain copies of such a statement as aforesaid.
19. Such copies on demand must be furnished within 24 hours of the requisition
being made. [Rule 75]
20. Where the amalgamation affects the rights of debenture holders of the company,
the said statement shall give the like information and explanation as respects the
trustees of any deed for securing the issue of the debentures as it is required to
give as respects the company's directors.
21. The chairman of the meeting or other person directed to issue notice will give an
affidavit of service not less than 7 days before the date of the meeting.
22. The meetings will be held as scheduled. The management will answer the
queries of the members permitted by the chair.
23. If a company is listed, send a copy of the scheme to SEBI and stock exchange.
24. Decision of the meeting will be ascertained by poll only. [Rule 77]
25. Send to the stock exchange three copies of the notice and a copy of the
proceedings of the general meeting including notices of meetings convened u/s
391 or section 394 together with annexure thereto. [Clause 31(c) and (d) of the
Listing Agreement]
26. Scheme proposed to be filed with the Court shall be filed with the stock
exchange, for approval, at least a month before it is presented to the Court.
27. Scheme to be presented shall not in any way violate, override or circumscribe
the provisions of securities laws or the stock exchange requirements.
28. Approval is required of a majority in number of persons present and voting
representing three-fourths in value of the members.
29. Chairman of each meeting will within the time fixed by the Judge (or within 7
days of the meeting) submit a report in Form 39.
30. Where the scheme is approved by members, the companies will within 7 days of
filing of the report by the chairman present a petition to the court for
confirmation of the scheme. The petition will be in Form 40.
31. File the resolution passed in general meeting with the Registrar electronically in
e-Form 23 within 30 days of passing of resolution.
32. A copy of the petition will be served on the Regional Director, Company Law
Board and others as directed by the court.
33. The court will fix a date for the hearing of the petition.
34. The court will also direct official liquidator to scrutinise the books of the
transferor company and submit a report thereon in terms of section 394 of the
Act.
35. Notice of the hearing will be advertised in the same papers as the court may
direct not less than 10 days before the date fixed for the hearing.
36. Any person interested including creditors and employees may appear before the
court and make submissions.
37. The order of the court may include such directions in regard to any matter and
such modification in the scheme as the Judge may think fit to make for the
proper working of the scheme.
38. The order will direct that a certified copy of the same should be filed with the
Registrar of Companies within 14 days from the date of the order or such other
time as may be fixed by the court.
39. The order will be in Form 41 with such variations as may be necessary.
40. The order may include order for dissolution of the transferor company if the
Official Liquidator has submitted the report.
41. The court may make any provision for any person who dissents from the
scheme.
42. The order will not have any effect until a certified copy is filed with the
Registrar.
43. The official liquidator upon directions of the court will be required to inspect the
books of the transferor company and report that the affairs of the company have
not been conducted in a manner prejudicial to the interests of its members or to
public interest.
44. The official liquidator may nominate a chartered accountant from his panel to
conduct the inspection and report to him. He may direct that inspection should
cover 3 to 5 years. The fees payable will also be fixed.
45. The official liquidator's representative will visit the company's office and
particulars required will be furnished to him.
46. On the basis of the report of the representative, the official liquidator will submit
his report to the court.
47. Thereupon the court will order dissolution from the date specified in the order.
48. Within 30 days of the making of the order, a certified copy thereof will be filed
with the Registrar of Companies electronically as an attachment to e-Form 21.
49. In computing the period of 30 days the time taken in obtaining certified copy has
to be excluded.
50. A copy of the court's order will be annexed to every copy of the memorandum
and articles of association of the transferee company.
51. Forward copy of the approval when obtained to the Reserve Bank of India, to
enable allotment to non-residents.
52. The allotment of shares to non-resident shareholders shall be subject to Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident
Outside India) Regulations, 2000. 1
53. As soon as the scheme has become effective, particulars will be intimated
through press and to government authorities, banks, creditors, customers and
others. Certified copies of the court order will be given where necessary.
54. Certified copies will be given to excise and sales tax authorities and fresh
certificates and licences obtained.
55. In consultation with the stock exchange, the register of members of the
transferor company will be closed to ascertain the names of persons who are
entitled to shares.
56. The register of members of transferor company will be closed as decided.
57. The transfers received up to the beginning of book closure will be processed.
58. A list of persons entitled to shares in the transferee company will be prepared.
This list will specify in respect of each member:—
(i) the name;
(ii) the number of shares held in the transferor company; and
(iii) the number of shares to be exchanged and allotted in the transferee
company.
59. A meeting of the Board of directors will be convened for allotment of the shares
to the shareholders of the transferor company. The Board will allot the shares
according to the Statement of Allotment. The transferor company will inform
the Stock Exchange/s on which the shares of the transferor company and the
transferee company are listed regarding the allotment of shares.
60. Fraction if any will be disposed as per the scheme. They are usually allotted to
two trustees for sale and distribution of net sale proceeds amongst the members
of the transferor company entitled thereto.
61. Form of share certificates and refund order will be finalised in consultation with
the stock exchange.
62. After the allotment the share certificates will be issued.
63. Return of allotment in e-Form 2 will be filed electronically with the Registrar of
Companies within 30 days of allotment.
64. In case if the transferee company is listed at any stock exchange it will submit
information for corporate action to the CDSL and NSDL for admission of the
securities for demat purposes.
65. If the transferee company is a listed company, the shares allotted to the
shareholders of the transferor company will seek in principle approval from the
stock exchanges and then submit a final application to all the Stock Exchanges
for listing of shares on which the transferee company's shares are listed,
regardless of whether the transferor company's share are listed or not.
66. If the transferor company is a listed company, its shares will be delisted for
which an application will be made to the concerned Stock Exchanges in a letter
form enclosing a certified true copy of the High Court order sanctioning the
Scheme of Amalgamation.
67. If the transferor company is a listed company but the transferee company is not a
listed company, consequent to the amalgamation, the amalgamated company
will become an unlisted company. In a case like this, it is advisable to include a
suitable clause in the Scheme of Amalgamation to provide for the delisting
automatically on the Scheme becoming effective.
68. Steps will be taken to get all licences including industrial licences held by the
transferor company to the name of the transferee company.
69. The transferee company will send suitable intimation to the employees of the
transferor company.
70. A copy of every such order shall be annexed to every copy of the Memorandum
of Association of the company issued after the certified copy of the order has
been filed, or in the case of a company not having a Memorandum of
Association, to every copy so issued of the instrument constituting or defining
the constitution of the company. [Section 391(4)]
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