Mergers and Acquisitions

Fast Track Merger under the Companies Act, 2013

To develop the value generation, market share and cost-efficiency of businesses, companies time and again direct themselves to mergers and acquisitions. Typically, Mergers and Acquisitions have various advantages and have proven its worth in many complicated situations in the past. But, the Companies Act, 2013 of India involved separate provisions and monotonous procedures to deal with them. Further they also require approval from many regulatory bodies as well as Central Government and direction. In consideration to same, there was a sincere demand for years to both make things comfortable as well as speed up the procedure related to it which result in introduction of Fast Track Merger.

Introduction of Fast Track Merger

On 15th December 2016, the Ministry of Corporate Affairs (MCA) notified a novel and a welcome thought of ‘Fast Track Merger’ by introducing Section 233 of Companies Act, 2013.

What is a Fast Track Merger?

Fast Track Merger provides a more straightforward procedure for the amalgamation of certain classes of companies which includes small companies, holding and subsidiary companies. Hence, under this concept, a merger or amalgamation can be entered into between:

• Two or more small companies
• Holding Company and its wholly-owned subsidiary companies

Before moving ahead, lets get familiar with few terms:

Fast Track Merger: A Unique Concept

Fast Track Merger is a new concept which is introduced in India under the Companies Act, 2013. Moreover, fast Track Merger is a unique concept as it does not require approval from National Company Law Tribunal (NCLT) for the merger. Hence, approval by jurisdictional Regional Directors based on the reports by the Registrar of Companies (ROC) and Official Liquidator is sufficient.

Also, Section 233 of the Companies Act, 2013 and Rule 25 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 deals with the concept of Fast Track Merger.

Benefits of Fast Track Merger

• No difficulty in doing business 
• Status in other jurisdictions/ countries
• Sharing of technological know-how
• Removal of administrative barriers
• Also, No need for issuing public advertisement
• No Court Convened Meeting
• Less Cost
• No mandatory approval of NCLT required, hence less burden on NCLT

What are the steps involved in the Fast Track Merger?

• Check Articles of Association: Firstly, both the transferor and transferee company need to check if their AOA permits for the merger or not. In case AOA does not allow, then it must be altered first.
• Prepare a draft scheme: Secondly, both the companies need to prepare a draft scheme for merger. Also, they must evaluate the exchange ratio based on the valuation provided by at least two professionals.
• Conduct a Board Meeting: Convene a Board Meeting to do the following:

1. Get the approval of the draft scheme

2. In addition, Authorize a director or a company secretary or any other person to do such acts in this regard

3. Arrange statement of Assets and Liabilities of the Companies disclosing the current position of Companies and receive the Auditor’s Report.

• Issue Notice:

1. Issue notice of the proposed scheme inviting objections/suggestions, from jurisdictional Registrar of Companies (ROC) and to the persons affected by the scheme within 30 days.

2. Also, Each company needs to file their respective Declaration of Solvency Statement (Form CAA-10) with the ROC.

3. The notice for the meeting must be sent before 21 clear days to the members. It must state the copy of proposed scheme, a statement disclosing details of the merger, copy of the latest audited financial statement, valuation report

• Approval from Creditors: Obtain written authorization from creditors by conducting a Creditors Meeting
• Permission from Members: Obtain consent from the members at a general meeting who holds at least 90% of the total number of shares of the company
• Filing of the draft scheme: A draft of the scheme involving merger must be filed within seven days of the conclusion of the meeting with creditors and members. Moreover, a copy of the scheme must be filed with the Regional Director (R.D.) having jurisdiction of the transferee company. Further, provide the scheme to ROC in form GNL-1 and official liquidator through speed post or registered post

• Approval of scheme by Regional Director: In case the official liquidator has no issue with the filed scheme, then he will take notice of the same and will issue a confirmation to the companies that are involved in the merger. But, in case the ROC has any objections, the same will be communicated to the regional director in writing. Also, the communication should be done within 30 days if the same is not done within 30 days it will be presumed that ROC has no objection about the scheme.
• Filing of Approved Scheme: The order of the Regional Director must be filed in Form INC-28 with the ROC within 30 days.

What would be the post effects of approval of the Fast Track scheme?

The post effects of the approval of this scheme are as follows:

• The transferor companies will get dissolve
• Transfer of the property or liabilities of the transferor company to the transferee company
• Any charges on the property of the transferor company will be considered charges as they were on the property of the transferee company
• Any legal proceedings by or against the transferor company pending before any court of law shall be continued against the transferee company.

Wrapping Up

The Companies Act, 2013 by introducing fast track merger has simplified the procedure for mergers and amalgamations of a particular class of companies such as holding and subsidiary, and small companies. Hence, fast track merger is a welcome move. Earlier, the Companies Act, 1956 does not offer a simple process for such alliances. Also, all such restructuring have to follow a time-consuming and challenging process as any other mergers or amalgamations. Hence, there was a great need to shorten and fast track the procedure for mergers of such companies where interests of third parties are not involved.