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COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS CHAPTER XV OF COMPANIES ACT, 2013

COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS CHAPTER XV OF COMPANIES ACT, 2013. By CMA, CS APARNA BISWAS. Applicable Provisions of the Act. Covered from Section 230 to 240 of the Companies Act,2013. For execution of procedures specified in above section rules has been notified namely:

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COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS CHAPTER XV OF COMPANIES ACT, 2013

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  1. COMPROMISES, ARRANGEMENTS AND AMALGAMATIONSCHAPTER XV OF COMPANIES ACT, 2013 By CMA, CS APARNA BISWAS

  2. Applicable Provisions of the Act • Covered from Section 230 to 240 of the Companies Act,2013. • For execution of procedures specified in above section rules has been notified namely: • Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 • National Company Law Tribunal Rules, 2016. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  3. Chapter XV of the Companies Act,2013 1. Section 230-231 deals with compromise or arrangements. 2. Section 232 deals with mergers and amalgamation including demergers. 3. Section 233 deals with amalgamation of small companies, holding company with wholly-owned subsidiary (also called fast track mergers) 4. Section 234 deals with amalgamation with foreign company (also called cross border mergers) 5. Section 235 deals with acquisition of shares of dissenting shareholders. 6. Section 236 deals with purchase of minority shareholding. 7. Section 237 deals with power of central government to provide for amalgamation of companies in public interest. 8. Section 238 deals with registration of offer of schemes involving transfer of shares. 9. Section 239 deals with preservation of books and papers of amalgamated companies. 10. Section 240 deals with liability of officers in respect of offences committed prior to merger, amalgamation etc. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  4. Compromise, Arrangement Vs Amalgamations/Mergers • Compromise & Arrangement are done between Company and Creditor or Company and Member. Whereas, • Amalgamation & Merger is a special type of Compromise & Arrangement between two or more Companies. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  5. Steps to be followed in execution of Compromise & ArrangementSection 230 • An application may be filed by creditor or member or Liquidator or Company to the Tribunal. • Application made to the Tribunal to order a meeting of Creditors or Members. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  6. Steps to be followed in execution of Compromise & Arrangement • The Applicant shall disclose to Tribunal by Affidavit:- • All material facts relating to Company. E.g. Latest Financial Position, Latest Auditors Report. • Reduction of share capital, if any, included in the Compromise or Arrangement. • Scheme of any Corporate Debt Restructuring, consented to by greater than or equal to 75% of secured creditors in value. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  7. Steps to be followed in execution of Compromise & Arrangement • Notice of meeting called in pursuance of order of Tribunal shall be sent to All Creditors, All Members & Debenture-holders • Annexure with the notice to be attached specifying details of Compromise/ Arrangement, Copy of valuation report etc. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  8. Steps to be followed in execution of Compromise & Arrangement • Advertisement of Notice shall be done on the website of company, shall be published in newspapers and if listed company then it shall also be placed in the website of SEBI and Stock-Exchange. • Notice shall also specify that they may vote in the meeting either themselves or through proxies or by postal ballot within 1 month of the date of receipt of Notice. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  9. Steps to be followed in execution of Compromise & Arrangement • Notice shall also be sent to Central Government, Income Tax Authorities, RBI, SEBI, ROC, Respective Stock Exchange, sectoral regulators or authorities etc. • Any representations by above authorities should be made within 30 days of receipt of Notice. In case of no response within the stipulated time, it shall be presumed that they have no representations to make on the proposals. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  10. Steps to be followed in execution of Compromise & Arrangement • For the Tribunal order to be binding 3/4th in value of creditors/members, as the case may be, who voted for the scheme is to be checked. • If the above majority is fulfilled, then Tribunal shall pass the order & it shall be binding on Company, Members, Creditors, liquidators, & the contributories of the company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  11. Steps to be followed in execution of Compromise & Arrangement • Order of Tribunal must be filed to ROC within 30 days of receipt. • No compromise/arrangement shall be sanctioned unless a certificate from company’s auditor has been filed that accounting treatment proposed in the scheme is as per AS prescribed u/s 133 • Tribunal may dispense with calling meeting of creditor, if creditors having at least 90% value, agree by affidavit to the scheme. • The words “Tribunal” shall be substituted by Central Government in case of Government Company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  12. Steps to be followed in execution of Amalgamation/ Merger- Section 232 • In case of Merger/Amalgamation of two or more companies and there is transfer of undertaking/property/liabilities, then Tribunal may on an application received by it, order meeting of such Creditors or Members. • Notice is given in same way as in Compromise & Arrangement. • Following is required to be circulated by the merging companies :- • Draft scheme adopted by directors of merging companies • Confirmation of filing draft with ROC • Share Exchange Ratio adopted • Valuation Report • Supplementary Accounting Statement, if any. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  13. Steps to be followed in execution of Amalgamation/ Merger • Order of Tribunal must make the following provisions :- • Date of Transfer • Allotment/ appropriation of shares/debentures/like instruments by transferee company • Continuation of Legal Proceedings • Dissolution without winding up of transferor company • Provision for Dissenting shareholders • NRI Holder • Employee Transfer • Certificate of Company’s Auditor on accounting treatment in conformity with AS. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  14. Steps to be followed in execution of Amalgamation/ Merger • On passing of the order , the transfer of assets & liabilities shall take place. • Certified copy of order must be filed with ROC within 30 days. • Duly certified statement of compliance of scheme by CA/CS/CWA must be filed with ROC. • The word “Tribunal” shall be substituted with “Central Government” in case of Government Company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  15. Section 230 Power To Compromise or Make Arrangements with Creditors & Members : • Power of NCLT on an application filed for a Compromise/Arrangement : • If a compromise/arrangement is proposed between : Company & Creditor or Company & Member • Then an application may be filed by Creditor or member or liquidator (appointed under this Act or IBC,2016) or the company, to the NCLT. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  16. Section 230 • Application was done to order a meeting of creditors or members, to be called, held & conducted in such a manner as NCLT directs. • Disclosure by Applicant : Applicant shall disclose to Tribunal by Affidavit: APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  17. Section 230 • Creditors Responsibility Statement • Safeguard for protection of other creditors • Report by auditor on Liquidity post restructuring • Statement to the effect that RBI guidelines for CDR shall be adopted. • Valuation report by a registered valuer. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  18. Section 230 • Notice of meeting conducted on order of NCLT shall be sent to :- at their individual registered addresses with the company. All Creditors All Members All Debenture holders APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  19. Section 230 • Annexure with the notice :- APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  20. Section 230 • Advertisement of Notice :- • Must be placed on the website of company • Must be placed on the website of SEBI & Stock- Exchange in case of listed company. • To be published in Newspapers, in the manner prescribed. • Notice shall also specify that they may vote in the meeting either themselves or through proxies or by Postal ballot within 1 month of receipt of notice. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  21. Section 230 • However any objection to the compromise/ arrangement shall be made only by persons holding greater than or equal to 10% of shareholding or having outstanding debt of greater than equal to 5% of total outstanding debt as per latest audited Financial Statement. • Notice along with prescribed documents must also be sent to Central Government, Income tax authorities, RBI, SEBI, ROC and such other sectoral regulators likely to be affected by compromise/ arrangement. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  22. Section 230 • Sectoral Regulators shall make representations, if any, within 30 days of receipt of notice, failing which, it will be presumed that they have no representations. • 3/4th in value of creditors / members who voted in person/proxy/postal ballot for the scheme should give their consent. • If the above majority is fulfilled, then NCLT shall pass the order, which shall be binding on Company/ all creditors/ all members/ liquidator and contributories. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  23. Section 230 Particulars to be stated in order issued by NCLT :- • If preference shares are converted into equity shares, then such preference shares must be given an option to obtain arrears of dividend in cash or equity shares. • If any class of creditors exist then it must be protected. • Section 48 variation of shareholder right must be complied with. • Exit offer to dissenting shareholders must be given. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  24. Section 230 • No Compromise/ arrangement shall be sanctioned, unless a certificate from company’s auditor has been filed that accounting treatment proposed in the scheme is as per accounting standard prescribed u/s 133. • Order of NCLT must be filed with ROC within 30 days of receipt of order. • NCLT may dispense with calling meeting of Creditors, if creditors having greater than 90% value, agree and confirm by affidavit to scheme. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  25. Section 230 • No compromise in respect of buyback shall be sanctioned by NCLT, unless it is in accordance with section 68 (Power of company to purchase its own securities). • For the entire section 230 the words “Tribunal” shall be substituted by “Central Government” in case of Government Company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  26. Section 231 Power of NCLT to enforce Compromise Arrangement • If Tribunal has passed order u/s 230 it shall have the power to :- APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  27. Section 231 • If NCLT thinks that order u/s 230 cannot be implemented & company is unable to pay its debts APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  28. Section 232 Merger & Amalgamation of Companies Filing of an application: When application u/s 230 is made to the NCLT for :- APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  29. Section 232 • Then NCLT may on an application received by it, order meeting of such Creditors or Members. • Circulation of information for meeting by the merging companies / companies of which a division is proposed, following is also required to be circulated :- • Draft adopted by directors of merging companies. • Confirmation of filing draft with ROC • Share Exchange Ratio adopted • Valuation Report • Supplementary Accounting Statement APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  30. Section 232 Following are the contents of Order issued by NCLT :- • Date of Transfer • Transfer of Instruments • Legal Proceedings • Dissolution • Provision for Dissenting persons • NRI Holders • Employee Transfer • Certificate by Company’s Auditor APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  31. Section 233 Aparna Biswas, Company Secretary (WBSEDCL) Merger or Amalgamation of certain companies If merger/amalgamation is between :

  32. Section 233 • A notice of proposed scheme, inviting objections, suggestions from ROC & official Liquidator within 30 days, to be issued by Transferor Company and Transferee company. • Objection/ Suggestion received by the companies to be considered in the General Meeting & it must be approved by respective members holding greater than or equal to 90% of total number of shares. • Each of such company is required to file a declaration of solvency with ROC. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  33. Section 233 • Meeting of creditors shall be called by giving 21 days notice & the scheme shall be approved by majority. i.e. 9/10th in value of creditors. • Transferee company shall file copy of scheme with Central Government, Registrar of Companies & official Liquidator. • If these authorities have no objection or suggestion then CG shall register the same & issue a Confirmation. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  34. Section 233 • If there are objections/ suggestions, then they may communicate to Central Government within 30 days, in writing. If not communicated, then it is assumed that no objections are there. • If Central Government after receiving objections or suggestions, is of the opinion that it is not in public interest or interest of creditors, it may file the application before NCLT within 60 days of receipt of application. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  35. Section 233 • Stating the objections & requesting NCLT to consider the same U/s. 232 • If NCLT is of opinion that scheme should be considered u/s 232, it may direct accordingly or confirm the scheme. • Copy of order confirming the scheme, shall be communicated to ROC of transferee Company & ROC shall register the same & issue confirmation to companies & this confirmation shall be communicated to ROC of transferor company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  36. Section 233 • Registration of Scheme = Deemed Dissolution of Transferor Company without winding up • Effect of Registration of Scheme : • Transfer of property/ Liabilities • Charges on Transferor Company = Charges on Transferee Company • Legal proceedings shall be continued against Transferee Company. • Where any amount is still unpaid to dissenting members/creditors , it shall become the liability of transferee Company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  37. Section 233 • Transferee Company shall not, on merger/ amalgamation hold shares in its own name or on behalf of any of its subsidiary/ associate company & all such shares shall be cancelled/ extinguished. • Transferee Company shall file application with ROC along with scheme registered, indicating the revised capital. ( Fees paid by transferor Company shall be set off against fees payable by transferee Company.) • Provision of this section (subject to some modification) shall also apply to companies specified in Section 230(1). Therefore Companies have option between Sections 232 & 233. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  38. Section 234 Merger or Amalgamation of Company with Foreign Company (NEW PROVISION UNDER COMPANIES ACT, 2013) • These provisions are also known as provisions related to Cross Border Merger. • Here, foreign company means, company incorporated outside India, whether having a place of business in India or not. • Central Government may make rules in consultation with RBI, in connection with merger & amalgamation under this section. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  39. Section 234 • A foreign company may (with prior approval of RBI) merge into a company registered under this Act or vice-versa and, • terms & conditions may provide for payment of consideration to the shareholders of merging company • it can be in cash, or in Depository Receipts or partly cash & partly depository receipts, as per the scheme. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  40. Section 235 Power to Acquire Shares of Shareholders Dissenting from Scheme or Contract Approved by Majority: • Transferee Company shall make an offer to the shareholders of transferor company. This scheme/ contract of transfer of shares must be approved by greater than or equal to 90% of value of shares held by members of transferor company, within 4 months of making the offer. • Transferee Company shall express its desire to acquire the remaining shares of dissenting shareholders, within 2 months of expiry of above 4 months & also give notice to such shareholders about its desire to acquire. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  41. Section 235 • If the above notice is given, the transferee company shall within 1 month from date of giving above notice, be entitled to acquire those shares under the scheme/ contract. This is applicable when no application has been made by dissenting shareholders to NCLT. • If NCLT decision is in favour of company & not in favour of Dissenting Shareholders, the transferee company shall on expiry of 1 month from date of notice , & once the dissenting shareholders application has been disposed off :- APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  42. Section 235 • it may send a copy of notice to transferor company and transfer deed to be executed on behalf of shareholders. • Pay the consideration to transferor company as per scheme/ contract. • Transferor company shall register the transferee company as holder of shares & intimate the dissenting shareholders of this fact & about the price payable to them. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  43. Section 235 • Any sum received by transferor company, shall be paid into a separate bank account & such amount shall be held by that company in trust for such shareholders and shall be disbursed to entitled shareholders within 60 days. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  44. Section 236 Purchase of Minority Shareholding • An acquirer or any person or group of persons • Holding / Becoming shareholders of greater than equal to 90% of issued share capital • They shall notify the company of their intention to buy the remaining equity shares at a price determined by a registered valuer as per the Valuation Rules. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  45. Section 236 • Also minority shareholders may offer to majority shareholders for purchasing their interest & to determine the prices. • Majority Shareholders shall deposit an amount = Value of shares to be acquired , in a separate bank account, to be operated by company whose shares are being transferred, for at least 1 year for payment to minority shareholders & such amount shall be disbursed within 60 days. Disbursements shall continue till 1 year, if not made within 60 days. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  46. Section 236 • Company whose shares are being transferred shall be deemed as transfer agent • If there is no physical delivery of shares, then the share certificate of minority shareholders shall be cancelled, & such company shall issue new shares to majority & the payment be passed on to the minority. • When shares of minority shareholders have been acquired in pursuance of this section, the shareholders holding greater than equal to 75% of minority equity shareholding, may negotiate or reach an understanding on a higher price. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  47. Section 237 Power of Central Government to Provide for Amalgamation of Companies in Public Interest • If Central Government is satisfied that it is essential in public interest that 2 or more companies should amalgamate, then CG may by order in official gazette, notify the same & provide for amalgamation into a single company. • Order may provide that legal proceeding of transferor company may continue against transferee company. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  48. Section 237 • Every member/ creditor of each transferor company before amalgamation , shall have, as nearly as possible, same rights/ interest in the transferee company. • If the interest/ rights are less, then they shall be entitled for compensation. • Person aggrieved by above compensation, may prefer an appeal to NCLT, within 30 days of date of publication of such assessment in official gazette. • Then the assessment of compensation, shall be made by NCLT. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  49. Section 237 • No order shall be made under this section, unless: • copy of proposed order has been sent in draft to each of the companies concerned. • if no appeal was filed & the time limit has expired. • if appeal was filed, then it has been disposed off • Central Government has considered the suggestions / objections (if any) received from company & made modifications in draft order, if any, by giving at least 2 months time to company. • Copy of every order made under this section, shall as soon as made, be laid before each house of Parliament. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

  50. Section 238 Registration of offer of Schemes Involving Transfer of Shares • For every offer of a scheme/contract, which involves transfer of shares in transferor company to transferee Company u/s 235 : • every circular of offer must be sent to members of company by directors along with necessary information . • Such offer must contain a statement on behalf of transferee company that it has taken necessary steps to ensure that necessary cash will be available and, before circulating, it must be compulsorily registered with Registrar of Companies. APARNA BISWAS, COMPANY SECRETARY, WBSEDCL

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