Select Your Location
Post-merger reorganization is the wide term which covers the reorganization of each & every aspect of the company’s functional areas to achieve objectives planned & aimed at. Parameters of post-merger reorganization are to be established by the management team of each amalgamating company differently depending upon its requirements, objectives of the merger & the management corporate policy.
The merger can join 2 cultures, 2 sets of procedures/processes & protocols, 2 sets of policies & change in the employment environment & the prospects of several hundreds of employees, who are the key to future value.
It wouldn’t be appropriate to divide all the actions in restructuring process into 3 stages viz. before, during & after, to ensure all the actions that are covered & put in right buckets to make sure proper planning for all of these actions. Post-restructure actions foresee the actions required to be taken after approval from the Court is obtained in case of the merger of 2 or more than 2 companies. One will need to give a thought about the applicability of the points stated below to relevant type of business restructuring.
In case the restructure is going to result in the change of name or where the Board of Directors (BOD) decide to change the name of entity post restructuring, then the company will need to plan to carry out the change of name on all the name boards and letterheads and all branches/ locations where the name of Company has been posted or displayed, including company’s website or on internet. Similarly, the arrangements need to be made to modify corporate logo, if the same is going to change as well.
A company will need to work on apprising its organization chart at all the levels. It will also need to reflect new vision/mission & the new thinking post-restructure. In the event of a takeover, the organization chart may not change expressively; but the acquired entity may need to align its organizational structure with acquiring entity.
A company should provide proper & timely communication about the restructuring organization to every single of its employees that would provide updated status, bring a clarity on what’s happening at the organizational level & avoid the miscommunication. Also, it would be useful to send the communication regarding such changes in the company policies. The company shall also consider sending an appropriate communication to the bankers & auditors & advisors, etc. upon formal completion of restructuring activity.
Companies need to be sensitive with respect to the terms & conditions of the employment. Usually, the courts would uphold the terms of employment to be not less favorable than existing the terms & conditions. Post-acquisition, a parent company may want an acquired company to adopt compensation structure of such parent entity. It would result in re-aligning structure as well as the pay scales of the existing employees. A company will have to carefully handle such sensitive areas to make sure about the employee satisfaction & comfort that pays in long run in building an image in addition to preventing or reducing low employee turnout.
Additionally, the company would need to consider the prevailing fringe benefits & the amenities provided to employees & feasibility of continuing same in the new set up (post restructure). For example – The Company may re-negotiate insurance premium for the employee-related insurance policies like (life, accident, medical as applicable) depending on conditions of the existing policy or preferred insurance vendor recommended by the acquiring entity.
A company would need to align or amend its internal policies to reflect organization in post restructure scenario. This might not apply to all the types of restructuring. Particularly in the case of a takeover, an acquiring entity is likely to claim all its policies of the acquired entity to bring consistency in the group’s policies. Specific changes to group policies may be needed depending on nature & size of business, location, the applicability of relevant State laws. The challenge continues further in the terms of implementing the changes in companies’ policies e.g. if acquired company has the policy to use laptops/ computers manufactured by DELL. If AN acquiring company uses laptops/ computers manufactured by HP, the company would need to take the decision to implement a group policy or to make the exception until the time the existing laptops consume expected life & new ones are due for the procurement. Similarly, it would be appropriate for revisit policies with the respect to the employee uniforms, the mobile phones provided by a company, to tie up with the insurance agents to the provide cover as per terms & conditions acceptable to the parent company, HR-policies that impact office timings & leaves soon.
Besides passing appropriate accounting entries to capture the merger/ acquisition/ financial structure, the company may need to adopt accounting policies, practices based on those followed by its new parent organization post-acquisition. The company needs to understand any reporting & database requirements of acquiring a company or merged entity to provide relevant data to the new management & to align existing systems with those of the parent/ merged entity. This may involve providing suitable training to concerned personnel & understanding issues, if any, to avoid incorrect reporting.
The company that is subjected to the restructuring that will need to align its internal processes with that of a merged entity for e.g. the domestic travel processor reimbursement of the expenses process. The Company’s current process may involve the issue of cheques to the employees against the expenses claimed; whereas the merged or acquiring entity credits its employee claims to the bank account maintained for such purpose. Accordingly, the company will need to open a bank account (expense reimbursement account) for all its employees. The company will also need to create e-mail ids for employees of merging entity & ensure access to their previous data as well. In case of an acquisition, acquiring company may insist on changing the email ids of an acquired entity to ensure consistency with its internal requirements.
Restructuring typically would entail re-allocation of persons operating in various positions/ grades in similar functions. At times, allocation in support functions becomes a challenge as now two persons h & le the similar profile e.g. personnel in HR, finance, administration etc. This would require reallocation of responsibilities or re-defining the responsibilities to specific geography/ line of business/ business units. In addition, the situation may rise the new positions to get created to fit into a new organization structure post-restructure. A careful planning is needed to avoid overlapping, underutilization of staff & to take care of career progression.
This is one of the important areas that deals with legal requirements & are close to the company secretary. It is crucial to identify the government authorities that are needed to be intimated formally about a merger or amalgamation or takeover e.g. SEBI, Stock Exchange etc. Restructuring is likely to require the reflection of changes to numerous government permissions, as well as licenses &approvals granted in the past for e.g. under labor & industrial laws, sales tax & service tax registrations, permissions under SEZ/STPI requirements where a unit of a merging entity now becomes part of the merged entity. Proper steps to be taken for updating the registration of the vehicles owned by the merging entity prior to the merger.
Maintenance of records of merging entity & making suitable entries in the records (e.g. registers under Companies Act reflecting changes in shareholding, directors etc. as applicable) of merged entity is a must. One will need to dive deep to ensure maintenance of all past records including statutory & non-statutory registers, original copies of various forms, returns, certificates, approvals, litigation & property records. The company may need to relocate the records to centralized storage maintained by the merged/new entity.
A restructuring may cause changes in property records e.g. consequent to the merger if merging entity stops to exist, the merged entity will need to take steps to make sure that the property records are updated to reflect a name of a merged (new) entity. If a company is occupying leased premises, one should check conditions under the lease agreement & complete necessary formalities such as intimation to the like. If a company has borrowed money against mortgage of property, the company will need to inform the bank about the restructure & check if any formalities need to be completed as per bank’s policies. While the order of the Hon’ble Court is sufficient to bring legal effect to a merger/ amalgamation, the bank may require formal intimation in the prescribed form within 7 days or so.
The restructuring is likely to put the pressure on a support staff, which was supporting an employee strength before amalgamation e.g. in-house training department was probably h & ling technical training for 2000 employees. Post amalgamation with another company, the training function needs to cater to training requirements for 5000 employees. It is further likely that the amalgamating entity had an independent training department or had a sophisticated training module to conduct online training, which the amalgamated entity may not have; which would require further deliberations to implement better practices in the new organization.
Restructuring could lead to changes in existing certifications such as ISO or similar other certifications. With the addition of locations or changes in organization structure, suitable changes need to be reflected to the certifications obtained e.g. post-acquisition, the acquiring company may decide to close down a branch of acquired company located in Bangalore, since acquiring company may have a large set up in Bangalore; which would require intimation to concerned bodies & completing necessary formalities to ensure all locations/ Functions in new set up are certified.
The restructure would require the changes to data displayed on the website of the company or new entity as the case may be. It would want bringing the appropriate changes in the company’s branding strategy, marketing material, employee visiting cards, employee identity cards, changes to any power of attorneys issued by the erstwhile entity, consolidation of existing bank accounts with the same bank, any action related to existing bank guarantees & other miscellaneous items such as crockery bearing company’s logo, etc. There could be many other aspects to the restructure beyond those that are stated above, depending on peculiarities of the restructuring by a company. A company should plan for a restructure & try to cover as many aspects as possible to ensure smooth transition & taking necessary actions to complete the restructuring process to its logical end.
In Hindustan Lever Ltd. (HLL) & Tomco merger case, HLL had been known for its result oriented, systems-driven work environment, where a strong emphasis is placed on performance. Accordingly, it always has & strives for the team of the high performing & high profile executives, carefully selected from best management institutes. Discussing the product profitability & target achievement is the only language that its managers understand. The work culture is very demanding and only the best survive. In fact, about hundred managers at that time for Unilever Group Company had quit their jobs, as they were not able to cope with demanding work culture. It was felt that more difficult part would be a manager of the 2 totally different work cultures & ethos, after the merger. In TOMCO the employee productivity was only 60% of HLL. It was opined that HLL would have to rationalize TOMCO’s workforce. HLL itself had launched a voluntary retirement package, in order to get rid of about 500 workers, however only a few resigned. However, TOMCO employees had been assured that their employment conditions were to be protected and service conditions would be honored. All the employees of TOMCO were to be absorbed as HLL employees.
Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.
The objective of the enactment of the Prevention of Money-laundering Act, 2002, i.e. PMLA (the...
Tax planning is a continuing effort and a management strategy for ensuring the minimization of...
On 18th May 2023, the Securities Exchange Board of India (SEBI) released a Consultation Paper o...
Infrastructure and real estate have been regarded as India's "sunshine sector" since the turn o...
On 22nd May 2023, the Central Board of Direct Taxes (CBDT) issued a new circular under secti...
Anyone can have different sources of income. With globalization and the opening up of economies...
The Reserve Bank of India (RBI) is crucial in regulating NBFC, including branch openings and cl...
In India, Non-Banking Financial Companies are subject to certain restrictions from taking publi...
It's usually a good idea to diversify the assets in your financial portfolio, especially during...
A nation is being built by the non-banking finance company through the development of wealth, t...
Are you human?: 7 + 9 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
In this article, we will discuss the FAQ for a declaration of dividend under companies act 2013. 1. Whether the Com...
29 Sep, 2017
Bouncing of a cheque is a criminal offense in India, which shall be punishable by imprisonment which shall not be l...
22 Mar, 2018
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!