merger and acquisition under Companies Bill, 2012
What are the ways and provisions by which the new Companies Bill, 2012 which is awaiting presidential nod to become an act, sought to make the Mergers & Acquisitions (M&A) more simpler and efficient in comparison with the existing Companies Act, 1956?
The answer to your question is :
1) Merger and amalgamation between two small companies or between holding company and its wholly owned subsidiary or prescribed class of companies have now been simplified without the requirement of a court process. Notice issued to the ROC and the official liquidator first and the objections / suggestions have to be placed before the members in general meeting. Once, the scheme is approved by members and creditors, notice would have to be given to Central Government, ROC and Official Liquidation. If the Central Government has any problems then they can file an application with the Tribunal.
2) M&A between companies registered in India and those incorporated in other jurisdictions is now permissible subject to rules prescribed by the Central Government in consultation with the RBI. The 1956 act doesnt allow mergers of Indian Company into a foreign company.
3) Shares of the transferee company should not be held in the name of the transferee company or under a trust for the benefit of the transferee company or its subsidiary or associate company and shall be cancelled or extinguished.
4) Objection to the compromise and arrangement shall only be made by persons holding atleast 10 per cent of the shareholding or having debt of atleast 5 % of the total outstanding debt as per latest audited balance sheet.
5) Notice of meeting along with other docs shall be sent to the Union Government, RBI, SEBI, Income Tax authorities, ROC, CCI. The representation if any, are to be made within 30 days, otherwise they will be barred.
6) As per the new bill, the valuation report has to be sent to the all the parties mentioned above along with the notice of the meeting. Alos, a disclosure about the impact of the arrangement on non-promoter members is required.
I hope this will suffice for your answer.
KPMG: Highlishts on Companies Bill 2012.
Following are the ways and provisions of the new Companies Bill, 2012:
1. It shall clear the ambiguity on restrictive transfers under joint venture or shareholders agreement(s) to accord legal enforceability to contracts and arrangements in relation to share transfers of a public company. Another positive change is the removal of mandatory requirement of transfers to reserves before declaring dividend. This means higher dividend pay-out to shareholders. The proposal of mandatory buyout of minority stake by any person acquiring or holding 90% or more in the company at a price determined by registered valuers could also find favour with investors as it may help cut litigation among shareholders.
2. Companies will not be permitted to invest through more than a two-layered structure. However, there is no bar on a company acquiring a foreign company that has more than two investment subsidiaries. This will require alignment with Reserve Bank of India's (RBI) policy on allowing overseas investments only through single layered structure.
3. In synch with international trends, it allows merger of an Indian company with a foreign company located in notified jurisdictions. The central government may, in consultation with RBI, frame necessary rules for this. While this is a progressive amendment, its success depends on how the rules shape up and whether the laws for making it tax-neutral are introduced. While merger of a foreign company with an Indian company was allowed earlier, the Bill proposes to restrict it to companies incorporated in select countries.
4. While flexibility of discharging consideration by way of cash or depository receipts to the shareholders has been embedded in such mergers, Indian tax laws need to be realigned to exempt shareholders too.
5. In case of merger of a listed company with an unlisted company, the transferee company will now have to provide an exit route to shareholders of the transferor company, by paying a fair compensation. If more than 25% shareholders of the transferor company opt out, it may result in adverse tax consequences for the Transferor Company and/or shareholder. Hitherto, in case of merger between companies with cross-holdings, some companies followed the practice of issuing shares to a trust rather than cancelling inter-company investment. The Bill prohibits such an arrangement specifically that can impair the promoters' ability to access funds at a short notice. This amendment could rather have been curtailed to restrict voting rights in respect of such shares.
SOURCE- The Economic Times
The Companies Bill, 2012 (hereinafter ‘the 2012 act’) as passed by the Parliament introduces several new concepts and changes within the existing regime regarding provisions relating to Mergers and Acquisitions. These changes and concepts have been highlighted below along with a comparison with the old Act.
The Companies Act, 1956 envisaged and provided for a restrictive scenario allowing only foreign companies to merge with Indian companies by following the procedures laid down in sections 391 to 394 of the Act and not the other way around. But, the 2012 act allows a foreign company to merge with an Indian company subject to the approval of the RBI. This facilitates the cross border listing of entities with Indian assets and exists to shareholders/investors. Earlier companies had to obtain approval of the High Court for corporate restructuring. But, under the new act a new concept is introduced wherein no NCLT (National Company Law Tribunal) approval is required. It is allowed for small companies and between the parent company and wholly owned subsidiary.
Earlier there were no specific provisions to deal with corporate debt restructuring but, the new act provides for an application that may be made to Tribunal for making a compromise or arrangement involving debt restructuring. Earlier, physical meetings had to be convened although voting by proxy was allowed, but under the 2012 act Shareholder/creditors now have the option to voting by postal ball. Under the 1956 act, there were no specific provisions for requirement for cancellation of inter-company stakes on Merger, Therefore, people starting creating treasury stock in the alternative. But, under new provisions the treasury shares that would arise out of the merger of cross holding companies would not be valid.
Further, the 2012 act makes the Auditor’s certificate mandatory for all the companies. Earlier there was no specific provision regarding this. Under the 1956 act, Notice of Company’s scheme had to be served to the Central Government, the Registrar of Companies and the Official Liquidator as per the directions of the High Court. The 2012 act makes addition in this requirement by making mandatory notification to various authorities including SEBI, RBI, Stock Exchanges, Competition Commission of India, etc.
As per the 1956 act, an essential requirement for approval of a restructuring scheme is to convene a creditors or members (shareholders) meeting. The new act intends to make things easier by allowing objection to the scheme to be made by only those persons holding not less than 10 % of the shareholding or having outstanding debt amounting to not less than 5% of the total outstanding debt as per the latest audited financial statement. Another significant addition the bill provides, for safety of minority shareholders, is the ‘tag along’ and ‘drag along’ clause. The tag along clause permits a minority shareholder to sell his stake along with the majority shareholder while a drag along clause gives right to a majority shareholder to force a minority shareholder to sell its stake.
1. Companies Bill, 2011: Key provisions affecting Mergers & Acquisitions – A compilation available at http://www.shbathiya.com/FC4.pdf
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