Ch 5 - Compromises, Arrangements and Amalgamations

Question 1

What are the different types of Amalgamations that are there and how is it different from the other type of Merger?

Answer 1

Question 2

What is the requirement in relation to maintenance of books and papers in case of an amalgamated company?

Answer 2

Books and Papers of the amalgamating company/ the company in which shares have been acquired by another company shall not be disposed of on prior permission of the Central Government.

Question 3

Power to compromise or make arrangements with creditors and members as per section 230? - Power of Tribunal to call for a meeting on an application filed for a compromise/arrangement [Sub-section 1)]

Answer 3

proposed between—

(a) a company and its creditors or any class of them; or
(b) a company and its members or any class of them,

order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

Explanation— For the purposes of this sub-section, arrangement includes a reorganization of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods.

Question 4

Power to compromise or make arrangements with creditors and members as per section 230? - Disclosures by applicant [Sub-section (2)]

Answer 4

(a) all material facts relating to the company**, such as the **latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company - This is the most important provision to be seen.

(b) reduction of share capital of the company, if any, included in the compromise or arrangement;

(c) any scheme of corporate debt restructuring consented to by not less than seventy-five percent of the secured creditors in value, including

Question 5

Power to compromise or make arrangements with creditors and members as per section 230? - To whom the notice of meeting conducted on order of tribunal be sent to?

Answer 5

Question 6

Power to compromise or make arrangements with creditors and members as per section 230? - Annexure with notice, including Advertisement of the notice>

Answer 6

Advertisement of notice: Such notice and other documents shall also be placed on
• the website of the company, if any, and
• in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and
• shall also be published in newspapers in such manner as prescribed under Rule 7 of the Companies (Compromises, arrangements and amalgamations) Rules, 2016

Question 7

Power to compromise or make arrangements with creditors and members as per section 230? - What are the situations under which the tribunal may dispense with calling of a meeting?

Answer 7

The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement. [Sub-section (9)]

Question 8

Power to compromise or make arrangements with creditors and members as per section 230? - Vote to the adoption of the compromise or arrangement [Sub-section (4)]:

Answer 8

A notice shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice:

Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement.

Question 9

Power to compromise or make arrangements with creditors and members as per section 230? - Binding order of Tribunal[Sub-section (6)]: -Most Imp

Answer 9

Where, at a meeting held, majority** of persons representing **three-fourths in value** of the creditors, or class of creditors or members or class of members, as the case may be, **voting in person or by proxy or by postal ballot, agree to any compromise or arrangement.

and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator, “appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,” and the contributories of the company.

Question 10

Power to compromise or make arrangements with creditors and members as per section 230? - Particulars to be stated in the order [Sub-section (7)]:

Answer 10

Addl: accounting treatment, if any, proposed in the scheme of compromise.

Question 11

Power to compromise or make arrangements with creditors and members as per section 230? - Filing of order of tribunal with registrar [Sub-section (8)]

Answer 11

The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.

Question 12

What is the process to be complied with for approval of the proposed merger scheme drawn by the directors of the company as per the provisions of section 232? - Filing of an application for purpose of reconstruction or companies involving merger/ amalgamation or transfer of undertaking, property etc. [Sub-section (1)]:

Answer 12

Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal—

(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies,

the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis

Question 13

What is the process to be complied with for approval of the proposed merger scheme drawn by the directors of the company as per the provisions of section 232? - Circulation of information for the meeting by the merging companies / the companies in respect of which a division is proposed [Sub-section (2)]:

Answer 13

Where an order has been made by the Tribunal as above, merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namel

Question 14

What is the process to be complied with for approval of the proposed merger scheme drawn by the directors of the company as per the provisions of section 232? - Order of tribunal on the agreement of compromise or arrangement [Sub-section (3)]: - what are some important provisions to be provided in the order among other orders?

Answer 14

The Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely

• the allotment or appropriation by the transferee company - Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies and any such shares shall be cancelled or extinguished;
• the continuation by or against the transferee company of any legal proceedings.
• dissolution, without winding-up, of any transferor company
• the p_rovision to be made for any persons who, within such time and in such manner_ as the Tribunal directs, dissent from the compromise or arrangement; - Along with this the transfer of the employees of the transferor company to the transferee company - Where in the case the employees dissent to become employees of the amalgamated companies after the merger

Question 15

What is the POWER TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM SCHEME OR CONTRACT APPROVED BY MAJORITY [SECTION 235] - Basic requirements as to acquisition of shares [Sub-section (1)]:?

Answer 15

Majority by approval of shareholders: The scheme or contract involving the transfer of shares or any class of shares in a company (the transferor company) to another company (the transferee company) has been approved by the holders of not less than 9/10th in value of the shares whose transfer is involved.

Time for receiving approval: The approval from 9/10th shareholders in value shall be received within four months after making of an offer in that behalf by the transferee company.

Acquisition of the remaining shares of dissenting shareholders: The shares already held at the date of the offer by Transferee Company, or by a nominee of the transferee company or its subsidiary companies shall not be counted for this purpose**. The transferee company shall express his desire to acquire the remaining shares of dissenting shareholders **within two months after the expiry of the said four months and shall give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares.

Question 16

What is the POWER TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM SCHEME OR CONTRACT APPROVED BY MAJORITY [SECTION 235 -Order of Tribunal to acquire shares of dissenting shareholders [Sub-section (2)]:

Answer 16

Where a notice under sub-section (1) is given, the transferee company shall, unless on an application made by the dissenting shareholder to the Tribunal, w_ithin one month from the date on which the notice was given_ and the Tribunal thinks fit to order otherwise, be entitled to and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company.

Question 17

What is the POWER TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM SCHEME OR CONTRACT APPROVED BY MAJORITY [SECTION 235 - Application by dissenting shareholders [Sub-section (3)]

Answer 17

Question 18

What are the provisions relating to PURCHASE OF MINORITY SHAREHOLDING [SECTION 236]? - Notify to company for purchase of minority shareholding [Sub-section (1)]:

Answer 18

In the event of an acquirer, or a person acting in concert with such acquirer - becoming registered holder of ninety per cent. or more of the issued equity share capital of a company, or
• In the event of any person or group of persons- becoming ninety per cent. majority or holding ninety per cent. of the issued equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their intention to buy the remaining equity shares.

Question 19

What are the provisions relating to PURCHASE OF MINORITY SHAREHOLDING [SECTION 236]? - Sharing of additional compensation [Sub-section (8)]:

Answer 19

Where the shares of minority shareholders have been acquired in pursuance of this section, and as on or prior to the date of transfer following such acquisition, the shareholders holding seventy-five per cent. or more minority equity shareholding negotiate or reach an understanding on a higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such negotiation, understanding or agreement,-
the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata basis.

Question 20

What is the power of central government to provide for Amalgamation of companies in Public Interest as per section 237? - Central Government may by order provide for amalgamation in the public interest [Sub-section (1)]

Answer 20

Where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, the Central Government may, by order notified in the Official Gazette(No need for any specific application to be made in this regard), provide for the amalgamation of those companies into a single company with such constitution, with such property, powers, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be specified in the order.

Question 21

What is the power of central government to provide for Amalgamation of companies in Public Interest as per section 237? - Continuation by or against the transferee company of any legal proceedings [Sub-section (2)]:

Answer 21

The order may also provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

Question 22

What is the power of central government to provide for Amalgamation of companies in Public Interest as per section 237? - Same Interest Rights or Compensation [Sub-section (3)]:

Answer 22

Every member or creditor, including a debenture holder, of each of the transferor companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the transferee company as he had in the company of which he was originally a member or creditor, and in case the interest or rights of such member or creditor in or against the transferee company are less than his interest in or rights against the original company, he shall be entitled to compensation to that extent, which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the Official Gazette, and the compensation so assessed shall be paid to the member or creditor concerned by the transferee company

Question 23

What are the provisions regarding preservation of Books and papers of amalgamated companies as per the provisions of section 239? - Common provision across all the amalgamations discussed in this chapter

Answer 23

The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the transferor company or its amalgamation or the acquisition of its shares.

Question 24

What are the brief steps in the fast track mode of merger or Amalgamation of certain companies as per the provisions of section 233 of the act?

Answer 24

Question 25

Who or what types of companies will be eligible for fast track mode of merger or amalgamation of certain companies as per section 233 of the act?

Answer 25

**Companies who may enter into scheme of merger or amalgamation [Sub-section (1)**]: A scheme of merger or amalgamation may be entered into between **_two or more small companies or between a holding company and its wholly-owned subsidiary company or class or classes of companies**_ i.e., 4b_**etween two or more start-up companies or one or more start-up company with one or more small company_** (given in Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
Explanation- For the purposes of this sub-rule, “s**tart-up company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such** in accordance with notification number G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade

Question 26

What is the effect of registration under fast track mode as per the provisions of section 233 of the act?

Answer 26

Question 27

What is the effect of merger and amalgamation on transferee as per the provisions of section 233 of the act?

Answer 27

A transferee company shall not on merger or amalgamation, hold any shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and all such shares shall be cancelled or extinguished on the merger or amalgamation.

Question 28

Whether adoption of fast track merger is mandatory for companies which are listed under this section? if not what is the phrase used in the act signifying such provision?

Answer 28

A company covered under this section may use the provisions of section 232 for the approval of any scheme for merger or amalgamation. [Sub-section (14)]

Question 29

What are the brief provision in relation to merger or amalgamation of company with Foreign company as per the provisions of section 234 of the act?

Answer 29