Mergers and Acquisitions

How to Draft the Scheme of Merger

How to Draft the Scheme of Merger

A scheme of the merger & acquisition is to be submitted before NCLT along with the application for a scheme of merger, the scheme shall contain the following:

1. Preamble

It includes the Name, CIN, the address of the two companies merging and a brief history of the company.

2. The rationale of Scheme of Merger & Acquisition

This includes the reason of Merger & Acquisition, what made companies go for the merger & acquisition, let say. Greater financial strength and flexibility improve the economic and competitive position of the combined entity; for future growth and expansion and to create a business structure, Reduction of overheads and other expenses; reduced regulatory compliance thereof etc.

3. Definitions

Necessary terms which are required to be defined that are relevant to understand the scheme let’s say:

1. To define the appointment date, effective date who is Transferor Company and who is transferor and Transferee Company.
2. To formulate the undertaking wherein details of the all things are being transferred are mentioned in detail such as all secured and unsecured Debts (whether in Rupees or in foreign currency), all other liabilities, rights and benefits rights and powers of every kind of the Transferor Company.
3. Details about all records, files, list of present and former customers and suppliers, customers credit information etc.
4. Transfer and Vesting of Undertaking of Transferor Company

Details of authorized share capital and issued share capital as on date of start of the merger & acquisition of both companies are required to be mentioned.

5. Contracts, Deeds and other Instruments:

This part shall contain all the details of all contracts, deeds, bonds, agreements, arrangements and other instruments of whatsoever nature to which the Transferor Company is a party or to the benefits of which the Transferor Company may be eligible and which are subsisting.

6. Accounting Treatments in the Books of Transferee Company:

Upon the coming into effect of this Scheme, what and how the accounting treatment in the books of accounts will be done should be mentioned.

7. Treatment of Taxes Paid by the Transferor Company:

What will be the effect on all taxes, levies, cess etc. (whether direct or indirect) when the merger & acquisition has not become effective for any tax liability that arises after the Appointed Date

8. Treatment of Scheme For the Purposes of the Income- Tax Act, 1961

This Scheme should be framed in compliance with the definition and conditions relating to “Merger” as specified under Section 2(1B) and Section 47 of the Income-tax Act, 1961.

9. Conduct of Businesses Until Effective Date

With effect from the Appointed Date and up to the Effective Date what will be the status of the business of the transferor and transferee company shall clearly state.

10. Legal Proceedings:

What will be the effect on all suits, actions, writ petitions, revisions or other proceedings by or against the Transferor Company pending and/or arising on or before the Effective date?

11. Staff, Workmen, and Employees

Employees are to be taken either on rolls of the newly forming company or contract or whatever is the terms and its effective date should be mentioned.

12. The issue of Shares By the Transferee Company:

If any then it should be detailed about the price of shares number of shares to allotted and other information about it.

13. Reorganization Of Authorized Share Capital of the Transferee Company

Upon sanction of this Scheme of merger, the Authorised Share Capital of the Transferee Company shall automatically stand increased, is there any further action required?

14. Application to National Company Law Tribunal:

How the application should be made either through the dispensation of meetings or for directions of holding and conducting of the meeting(s) of the members and/or creditors of these companies, as may be directed by the Tribunals.

15. Modifications, Amendments to the Scheme:

What should be the modus of giving it effect to any modification/amendments, like through resolution of BOD?

16. Effect of Non-Receipt of Approval/Sanction:

What shall happen in the event of any approvals or conditions enumerated in the Scheme not being obtained or complied with, or for any other reason, the Scheme cannot be implemented.

17. Expenses Connected with the Scheme:

Who shall be bearing the costs, charges, and expenses, including any taxes and duties of the merging companies shall bear?