Compromise and Arrangements Flashcards
-who can vote and what is time period within which vote must be cast
who can make objections to scheme of arrangement and period allowed for making such objections?
- persons to whom the notice is sent may vote in the meeting (postal/proxy/actual attendance)
- within one month from the date of receipt of such notice:
objection to the compromise or arrangement shall be made only by persons
- holding not less than ten percent of the shareholding -or having outstanding debt amounting to not less than five percent of the total outstanding debt
- as per latest audited financial statements.
state the legal procedure to be followed by dissenting shareholders?
- notice have been given by transferee company to dissenting shareholders that it desires to acquire his shares,
- the dissenting shareholders may make an application to the Tribunal within one month from the date on which the notice was given
- for the Tribunal to pass an order otherwise than the acquisition of shares by transferee company.
Conditions for amalgamation in nature of merger
ALL the below conditions to be satisfied
- All the assets and liabilities - of the transferor company become, after amalgamation, the assets and liabilities of the transferee company
- Shareholders holding not less than 90% of the face value of the equity shares of the transferor company - other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) shall become equity shareholders of the transferee company)
- consideration for the amalgamation - wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.
- business of the transferor company - intended to be carried on by transferee co.
- book values of the assets and liabilities of the transferor company - incorporated in books of transferee co. with no adjustments except for uniformity of a/c policies.
What is covered in Order issued by NCLT under Section 230 (Compromise or arrangement). When shall the Order be filed with ROC by co.?
Order shall provide for all or any of below:
(a) conversion of preference shares into equity shares- such preference shareholders shall be given an option to either obtain arrears of dividend in cash or equity shares
(b) the protection of any class of creditors;
(c) variation of the shareholders’ rights-
it shall be given effect to under the provisions of the act
(d) Compromise / arrangement agreed by creditors
- any proceedings pending before the Board for Industrial and Financial Reconstruction shall abate;
e) such other matters including exit offer to dissenting shareholders
The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt
basic requirements as to acquisition of shares by transferor co. mentioned in Sec 235 of the Companies Act, 2013
- Who and how many people should approve
- Within what time period should approval be received
- When should notice to shareholders be given
- What is the window period for dissenting shareholders to oppose
- Is acquisition of dissenting shareholders’ shares an option or an obligation?
The scheme or contract involving the transfer of shares in a company (transferor company) to another company (transferee company) has been approved by the holders of not less than 9/10th(90%) in value of the shares whose transfer is involved.
2. The approval of 9/10th shareholders in value shall be received within 4 months after making of an offer in that behalf by the transferee company.
3. The transferee company shall express his desire to acquire the remaining shares of dissenting shareholder in 2 months after the expiry of the said 4 months and shall give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares.
The transferee company shall be entitled as well as bound to acquire the shares of the dissenting shareholders where no application is made by any dissenting shareholders to the tribunal in 1 month of receipt of notice of acquisition of shares or where an application is made by any dissenting shareholder but such application is dismissed by the tribunal.
In the given case since application made by the dissenting shareholders has been dismissed by the tribunal hence A Ltd is entitled and bound to acquire all the shares of the dissenting shareholders i.e. entire 8% shareholding.
Since A Ltd only acquired 5% shareholding of the dissenting shareholders hence this is in contravention of Sec 235 of the Companies Act, 2013. Hence the takeover is invalid.
requisite majority for approving scheme of compromise / arrangement
To be approved by majority in number , of those who voted (participated ) in the meeting
- holding atleast 3/4 in value
- through voting in person, proxy, ballot
- Sanctioned by tribunal
process to be complied with for the approval of the proposed merger scheme drawn by the directors
Process:
1.An application is made to the Tribunal for the sanctioning
the order
2. a meeting of the creditors or class of creditors or members is called, and held as prescribed by the tribunal.
3.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, -
a)the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;
(b) confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.
Can Central govt order two companies to amalagamate, when and authority with whom the application for merger is required to be filed by CG
According to Section 237 of the Companies Act, 2013, 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, provide for the amalgamation of those companies into a single company.
There is no specific authority with whom the application for merger is required as the Central Government shall by notification in the Official Gazette, will provide for the amalgamation of the two said companies into a single company.
provisions governing the preservation of Books and Records of a Company which has been amalgamated with, or whose shares have been acquired by, another Company
Transferor company’s books 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 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.
powers of Central Government to amalgamate the two companies in public interest
Central Government may by order provide for amalgamation in public interest.
According to Section 237 of the Companies Act, 2013, 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, 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.
Continuation by or against the transferee company of any legal proceedings
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 amalgamation.
Same interest rights or compensation
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 in terest 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 the 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.
How the compromise or arrangement scheme is adopted by the companies entering into any contract under the companies Act, 2013?
Section 230 of the Companies Act, 2013 deals with the powers of the Tribunal on the filing of application for the compromise or arrangement. According to the contract, where a compromise or arrangement is proposed between a company and its creditors or any class of them; or a company and its members or any class of them, the Tribunal may, on the application of the company, creditor, member of the company, or liquidator, may order a meeting of the creditors/ class of creditors, or of the members/class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Where a meeting is proposed to be called in pursuance of an order of the Tribunal, a notice of such meeting shall be sent. Further section 230(4) provides that 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. Where, at a meeting held, majority representing three-fourths in value of the creditors/class of creditors, or of the members/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/class of creditors, or of the members/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.
Is the fast track merger option - optional or compulsory for the comapnies specified under the act
Optional - cos. can choose the normal route or the fast track route
