Amalgamation

 Meeting of hareholders can b dispensed with. 

how to make an application for this

 i dont have expreience of this...but i think that the said relief shall b sought along with your application for Merger/Amalgamation. 

 

thank u

 The following though not in reply to ur query, but still b useful for your assignment.......................................

 

M & A Perspective

Merger & Acquisition Requirements

A scheme of merger goes through several stages before it becomes operational. A brief list of such services is given below.

1.    Determining Company's goals and needs

 

2.    Assessing your strategic options

 

 

3.    Financial analysis, including recasting and forecasting

 

4.    Evaluating your Company's worth

 

 

5.    Developing a professional presentation for your business

 

6.    Identify/ search Sale / Merger candidates.

 

 

7.    Verification of these candidates.

 

8.    Preparation of Due Diligence Statement and Business Valuation.

 

 

9.    Preparation of Checklist for the management giving consequences under various laws.

 

10. Take care of full documentation procedures and compliance under various laws jointly with various associates.

 

 

11. Co-ordination with various Authorities, Professionals involved for the speedy completion of the various formalities.

 

12. Negotiating the transaction

 

 

13. Accounting and Taxation.

 

14. Post-merger compliance and the human aspects.

 

15. Closing the deal

 

 

 

 

 

 

 

M & A Perspective

Merger & Acquisition Authorities Involved

There are number of authorities and persons involved as required by the statute and specialized nature of activity to be carried out. The tasks categorized in stages like framing, sanctioning and implementation of the scheme of amalgamation.

1.    Judiciary

2.    Government

3.    Professionals

 

Judiciary

• High Court of the State where Registered Offices of Companies involved in merger are situated

Government

• Registrar of Companies
• Official Liquidators
• Regional Director - Company Law Board
• Central Government
• Authorities under respective statutes whose permission /approval is required in the course of merger

Professionals

• Chartered Accountants
• Company Secretaries
• Merchant Banker
• Advocates
• Counselors
• Venture capitalists
• Financial institutions

Legal due diligence is undertaken to achieve the following objectives

 

1.    To assess the impact of likely results of current and potentially pending litigation and result of recently concluded litigation,

 

2.    To ensure that the subject company has complied with the provisions of all the relevant statutes and there would be no potential liability on account of non compliance,

 

3.    To assess the current and anticipated future impact of government regulations on the entity's cost level.

The information to be collected in Legal Due Diligence includes:

·         Names and addresses of the company's attorneys

·         Is a discussion with them appropriate, warranted?

·         Make inquiries of the company's management and attorney regarding possible lawsuits, contract problems, etc.

·         Does the company have good legal records? If not, why not? Assess the implications.

·         Make inquiries of the company's management and legal concerning the likelihood of an unfavorable law suits. Assess the implications to the extent there might be legal problems, the company's investment risk might be significantly higher

 

 

In the due diligence a serious note of any extraordinary event or items should be taken care of.

M & A Perspective

Merger & Acquisition Relevant Acts & Sections

Corporate Law

1.   Companies Act 1956

Relevant provisions are contained in Sec. 390 to Sec.396A of Chapter V of The Companies Act, 1956.

• Sec.391 : Deals with powers of a Co. to compromise or make arrangements with Creditors and Members.
• Sec.392 : Defines Power of High Court to enforce compromises and arrangements.
• Sec.393 : It requires Co not only to intimate information in regards to compromise or arrangements with creditors and members, but it also requires that the effect of the scheme must be explained.
• Sec. 394 : It contains provisions for facilitating reconstruction and amalgamation and the court finally approves the amalgamation or arrangements after the same have been approved by the members.
• Sec.394A : Requires that the Court shall give notice of every application under Sec.391 or 394 to the Central Government and shall consider the representations, if any, made to it by the Government before passing any order under any of these sections.
• Sec.395 : Provides the power & duty of the Co. to acquire shares of the shareholders dissenting from the scheme or contract approved by majority.
• Sec.396 : Deals with the Power of the Central Government to provide for amalgamation in Public Interest.
• Sec.396A : Deals with preservation of books and papers of the amalgamated companies.

Other provisions -

• Sec.108A : prohibits any individual, firm, body corporate, group, bodies corporate under the same management to acquire more than 25% of the paid-up equity share capital without prior approval of Central Government.
• Sec.17 : Alteration of Memorandum of Association. Even if MA of TR CO does not have object clause relating the power to amalgamate with any other company, the court has enough powers under Sec 392 & 394 to sanction the scheme. It is also possible to provide for amendments to object clause of both Transferor Company & Transferee Company in the scheme itself.
  
  
  
  Compensation for loss of office is not permissible except to managing or whole time director or to directors who are managers. But if Managing Director or whole time director is re-appointed as Managing Director or whole time director or manager in the reconstructed or amalgamated company, then no compensation shall be payable.
• Sec 319 : No Director (including Managing Director & working directors) is entitled to any compensation for loss of his office due to transfer of undertaking or property from such company to Transferee Company or any other person, unless the particulars of the payments have been disclosed to the members and the proposal has been approved by the company in general meeting.
• Sec 42: membership of holding company. A body corporate can not be a member of a company, which is its holding company and any allotment of shares to subsidiary is void (subject to few exceptions). However, in Consolidated Coffee Ltd. Vs. Arunkumar Agarwal (HC of Karnataka), it was held that the provisions governing amalgamation are independent and are not limited by the provisions of Sec.42.

 

2.   Competition Act (MRTP)

 

·         Section 5: Regulation of combinations

·         Section 6: Regulation of combinations

 

3.   Stamp Duty

Sec.3 of the Indian Stamp Act, the Bombay Stamp Act, and all other states’ Stamp Act creates a charge on every instrument which is specified in the schedule to the Act and if the said instrument, is executed in the state or executed out of the state but relates to any property in the state or is received in the state for any matter or thing done or to be done in the state

The location of the property is totally irrelevant for the purpose of deciding the place where the stamp duty is payable. Here, the High Court Order is the Instrument on which stamp duty is required to be paid.

As per Article 25 : [(da) if relating to order of High Court in respect of the amalgamation or reconstruction of companies under section 394 of the Companies Act,1956 or under the order of the Reserve Bank of India under section 44A of the Banking Regulation Act,1949.

The same duty as is payable under sub-clause (1),];

10% of the aggregate of the market value of the shares issued or allotted in exchange or otherwise and the amount of consideration paid for such amalgamation:

Provided that, the amount of duty, chargeable under this clause shall not exceed,-

1. an amount equal to 7% of the true market value of the immovable property located within the State of Maharashtra of the transferor company; or
2. an amount equal to 0.7% of the aggregate of the market value of the shares issued or allotted in exchange or otherwise and the amount of consideration paid for such amalgamation whichever is higher ;

Provided further that, in case of reconstruction or demerger the duty chargeable shall not exceed, -

1. an amount equal to 7% of the true market value of the immovable property located within the State of Maharashtra transferred by the Demerging Company to the Resulting Company ; or
2. An amount equal to 0.7% of the aggregate of the market value of the shares issued or allotted to the Resulting Company and the amount of consideration paid for such demerger, whichever is higher.]

Levy & Collection

 

Order which has the effect of transferring the assets and liabilities of one company to another company i.e. order of the High Court of the Transferee Company would attract stamp duty liability. And it will be High Court of the Transferee Company which will be empowered to levy and collect stamp duty.

 

As per the provisions of the Sec.17 of the Bombay Stamp Act, the stamp duty should be paid on or before the execution of the instrument or the next working day following the day of execution of the instrument i.e. High Court Order. Duty should be paid after the date of order of the court but before filing with the registrar of companies.

Following are the measures to reduce stamp duty

• Decide Transferor Company and Transferee Company
• Change in registered office of the company
• Convert Transferor Company into100% subsidiary company. As there is no consideration payable by holding company because all the shares are owned by the holding company itself, no stamp duty can be levied.
• If stamp duty is paid twice in two different states –at the time of registration and also at the time of execution, the duty paid in one state is eligible for set off to be considered at the time of making payment second time.

 

4.   SEBI

The Securities and Exchange Board of India is the Controlling Authority for all matters concerning Stock Markets, Mutual Funds, Foreign Institutional Investors and other persons connected to securities, shares, mutual funds etc. SEBI has issued guidelines on takeovers in 1997

SEBI Guidelines on Buyback of Shares

• Definition
• Tender Offer
• Book building
• Open market
• Special Resolution (Regulation 5)
• Powers
• Methods (Regulation 4)
• Prohibitions (Regulation 4)
• Merchant banker (Regulation 20)
• Action against Intermediaries (Regulation 21)
• General obligation (Regulation 19)

 

5.   Forms

There are various forms which are required to be filled up for the purpose of fulfilling all the requirements applicable for filing applications relating to mergers. The details of all these forms are given under Court Rules, 1959.

• Form 33 - Summons for Directions to Convene a Meeting under section 391
• Form 34 - Affidavit in Support of Summons
• Form 35 - Order on Summons for Directions
• Form 36 - Notice convening Meeting
• Form 37 - Form of Proxy
• Form 38 - Notice Convening Meeting of Creditors/shareholder, etc.
• Form 39 - Report by Chairman
• Form 40 - Petition to sanction compromise or arrangement
• Form 41 - Order on petition
• Form 42 - Order under section 394

 

 

 

 

 

 

 

 

 

 

 

 

 

M & A Perspective

Merger & Acquisition Meetings

Meeting for Merger

1st Board Meeting

The company (both transferor and transferee) should convene a board meeting and passed the following resolutions in that meeting.

• Approval of the proposal for Merger
• Appoint valuers, lawyers, solicitors & consultants
• Obtain due diligence certificate, if required.

 

2nd Board Meeting

 

Once the companies gets draft scheme of mergers, board should convene another board’s meeting & get approved the following resolutions.

• Approval of draft scheme of amalgamation
• Approval of exchange ratio & appointed date
• Appointment of counsel to make representation in high court
• Authorizing one director/officer to sign petition/application on behalf of company

 

3rd Board Meeting

 

The board (transferee Company) should take steps to call extraordinary general meeting to approve

• Allotment of shares to other than present shareholders in terms of Sec 81(1A)
• Increase in share capital or change in capital structure of authorized capital, if required
• Change in object clause or name clause if required

 

4th Board Meeting

 

Once all concerned approves proposed merger, the companies should take merger on record and also complete all the formalities, as this will be the last board meeting in the case of Transferor Company. In case of Transferor Company, the board approves accounts. In case of transferee company the board should pass resolution making allotment of shares to the shareholders of the Transferor Company as per the swap ratio after fixing the record date in the case of listed company.

 

 

Shareholders Meeting.

 

If the honorable high court directs to the companies (Transferor & Transferee) proposing merger to call shareholders’ meeting, then the said meeting should be called as per the direction of the court after approving all documents by the court i.e. mode of service of notice, quorum, venue & time, appointment of chairman, name of paper in which the notice of meeting was published. Here resolution should be passed to approve the merger (it may be noted that approval has to be in full and cannot be approved in part) and voting is by way of ballot and for approval 75% in value terms and 51%in number terms should vote in favor of the resolution

At the meeting, question answer session should be conducted & conduct the voting for the resolution of the approval of the scheme & get the special resolution passed.

 

Transferee Company may conduct any other extra ordinary general meeting to approve

• Increase in share capital or change in capital structure of authorized capital.
• Special resolution authorizing director for issuing shares other than existing shareholders.

 

Meeting of Creditors of Transferor Company.

 

If the honorable high court directs to the companies (Transferor & Transferee) proposing merger to call meeting of the secured & unsecured creditors, then the said meeting should be called as per the direction of the court after approving all documents by the court i.e. mode of service of notice, quorum, venue & time, appointment of chairman, name of paper in which the notice of meeting was published. Here resolution should be passed to approve the merger (it may be noted that approval has to be in full and cannot be approved in part) and voting is by way of ballot and for approval 75% in value terms and 51%in number terms should vote in favor of the resolution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

M & A Perspective

Merger & Acquisition Documentation

1. Documents required for Statutory Requirements
2. Documents Required by various Parties

Documents required for Statutory Requirements

1. Scheme of Amalgamation

The Scheme of Amalgamation is basically a contract between two companies and the basis of the whole restructuring process. The scheme has to be submitted to all authorities with other documents required.

A Scheme normally contains the following clauses

·         Definition clause

·         Definitions of Transferor and Transferee Company, Appointed date, Effective date, Undertaking etc.

·         Share Capital clause giving details of share capital of both the companies.

·         Clause giving details of assets and liabilities getting transferred

·         Consideration to be discharged & Exchange Ratio

·         Clause giving details of obligations /liabilities under Contracts, Deeds, Bonds, Trade marks & other instruments getting transferred

·         Pending Legal proceedings

·         Treatment of reserves in the books of Transferee Company

·         Restrictions on Transferor Company to do business until the Effective Date

·         Clause giving:

a)    operative date of the scheme

b)    provisions for Transferor Company's staff, workmen and employees and terms of their employment in Transferee Company

1. Scheme should provide for continuity of service of employees of Transferor Company and terms should not be less favorable than their existing terms of employment
2. Clauses giving :

a.    Expenses incurred to be borne by which Company

b.    Any other details required to be disclosed with the scheme.

c.    Some special information relating to the scheme

 

 

2. Application

All the companies involved are required to make application to The High Court to obtain directions for holding various meetings of shareholders & creditors or dispensation thereof for approval of the scheme. The copy of the Application is given under Form 33.

Contents of the Application

·         Names of the transferor/transferee company

·         Names of Directors

·         Share capital-Authorized, Issued and Paid up

·         Address of Registered Office

·         Date of incorporation

·         Date of commencement of business

·         Latest Audited Balance Sheet

·         Scheme of arrangement with creditors

·         Copy of scheme of Amalgamation (Annexure)

·         Prayer for holding meetings of shareholders and creditors

3.   Court Order On Application

The High Court to which application is made for seeking permission to file the petition passes an order either allowing or rejecting the application.

The contents of the order are as follows

·         Object clause to contain amalgamation as one of the objectives

·         Scheme approved by the Board of Directors & advertisement of the same to be given

·         Prayer has to be made for the transfer of asset ( specific asset)

·         Inform court of the consideration of transfer

·         Confirmations required to be taken considering the interests of both the shareholders & the members

·         Prayer for dispensation of meeting if confirmation for secured/unsecured creditors has already been taken (This is compulsory in case of Transferor Company. The Transferee Company may do it only to keep its creditors informed about the merger.)

·         Conveying the meeting of different class of shareholders

·         Decide upon the time, place, chairperson of the meeting

·         Notice to be given regarding publication of notices in two languages. One in English & the other in a vernacular language & also in the Govt. Gazette.

 

4. Petition

After complying with various directions issued by the Honorable High Court , companies are required to make petition to the court, and after the scheme is approved by all of the above parties, the company is required to file petition to the Court. This petition is in form no 40.

The contents of the petition are as follows

·         Appointed Date

·         Registered Office

·         Date of incorporation

·         Share Capital - Authorized, Issued and Paid up

·         Objects of the Petitioner company

·         Details of shareholders and creditors meetings held

·         Prayer for sanctioning the scheme

·         Copy of Memorandum and Articles of Association of Transferor and Transferee companies

·         Copy of Audited Accounts of Transferor and Transferee companies

·         Scheme of amalgamation

·         Copy of Chairman's Report

 

Documents Required by various Parties

1. For the High Court

             I.        With Application

                II.            With Petition

With Application

·         Application ( Summons for directions in Form No. 33)

·         Director's Affidavit ( Form No 34 )

·         Vakalatnama

·         Memorandum of registered office address

• Copy of M.O.A & A.O.A ( both companies )
• Balance sheet & Profit & Loss Account of Both Companies
• Scheme of Amalgamation
• Confirmations of creditors (Secured & Unsecured) in the case of Transferor Company may also be enclosed if possible to avoid their meetings
• Summons for direction to convene the meeting of the members of the transferor & transferee companies to approve of the scheme( form no 35 )
• Minutes of order

With Petition

• Copy of Petition ( Form 40 )
• Vakalatnama
• Copy of Balance Sheet & Profit & Loss A/c
• Memorandum of registered office address
• Copy of M.O.A & A.O.A ( both companies )
• Scheme of Amalgamation with explanatory statement u/s 393
• Valuation Report for exchange ratio
• Chairman's Report ( Form 39 )
• Directors Affidavit
• Copy of Court order on Application ( Form 35 )

 

2. For Shareholders

• Notice convening the meeting of the Equity Shareholders mentioning the following (to be signed by the chairman appointed by The Court) by giving 21 days clear notice & under certificate of posting under the authority of the Chairman appointed by the Court specifying therein date ,time and place of meeting and name of person appointed as chairman or alternate chairman by The Court
• To Attach form of Proxy
• Copy of Scheme of Amalgamation
• Explanatory statements pursuant to Sec 393 of the Companies Act, 1956 including details of shareholding of directors of both the companies in both the companies

 

3. For Regional Director - Company Law Board (official Liquidator)

• Notice of petition with all enclosures to be served on official Liquidator by Transferor Company and on ROC by both companies 
• All details required to be furnished are as required by the questionnaire issued upon the company. Some of them are as under

                      i.Whether the company has complied with all the formalities as required to be done under the law.

                     ii.Whether all details in regards to documentation have been filed with the R.O.C.

 

4. For Registrar of Companies

1.  Company Law Board

2.  After Merger is approved

 

 

1.    Company Law Board

·               Copy of application and petition should be filed with R.O.C.

·         Whether all details in regards to documentation have been filed with the R.O.C.

·         R.O.C. looks into whether all requirements are complied and if not satisfied it can file affidavit in the court stating its objectives

 

2.    After Merger is approved

·         Copy of Order sanctioned by the Hon'ble High Court.

·         Scheme of Amalgamation.

·         Changed M.O.A & A.O.A ( Amend through Scheme )

·         Any other document which has to be filed as per the requirements of the Companies Act, 1956.i.e. if, say, change of name or change in object clause is also being done at the same time then procedure for the same etc.