Concept of Fast Tracker Mergers in India u/s 233 of the Companies Act, 2013

First of all, we will go through the concept of fast track merger under Section 233 of the Companies Act, 2013. This section has been notified by The Ministry of Corporate Affairs 

On 15 December 2016, introduces the concept of Fast Track Merger (FTM) along with the given procedure for mergers and amalgamations of certain classes of companies which include small companies as well as whether it’s called company being “hold” or wholly -owned subsidiary companies. However, the section provided under the Companies Act deals with both fast track mergers and traditional mergers. It takes approximately ten months to regulate bodies and every type of company must go through this route. 

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Highlights of Fast-track Merger Process in India

  • The scheme of merger or amalgamation may be entered between toe or more than small companies.
  • Between a holding company and its fully owned subsidiary company.
  • In case of other class or classes of companies as may be prescribed or yet to be prescribed.
  • In some other following types of companies exclude public companies, section 8 companies and cooperates governed by the Special Act.

Difference between Traditional Mergers and Fast-Track Mergers (FTM)

A traditional merger is a “corporate strategy of combining different companies into a single company in order to enhance the financial and operational strengths of both organizations. When two companies merged, gives new branding or identity to make it stronger. In recent top mergers are the biggest mergers of all time, the following are:

Vodafone and Mannesmann

This merger company took place in 2000 and made it to the largest merger and acquisition deal in history. The U.K.- based Vodafone acquired with German Company Mannesmann. Here the deal is related to telecom and mobile phones.

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America Online and Time Warner

This merging company made it to the second largest in history and took place in 2000. Most Americans used their landline phone service to access the internet through provider America Online (AOL).

Fast-Track Merger (FMT)

The Companies Act,2013 has introduced the ingenious concept of fast track merger for very small corporate or companies with its wholly owned subsidiary companies. However, it has been introduced in Section 233 of the Companies Act read with Rule 25 of Companies Act. In it, there is no transfer of ownership but in case of Traditional Merger – there is wholly transfer of ownership.

Well! First of all, we need to know why does merger matters?

To make a stronger company or to have real combined assets, competencies or profit in the market?

It’s obvious two company merged to single company result into a dilution of the financial strengths of one of the companies, provided to that new company will give more profit in stock across the same asset base better with merged companies.

There are few advantages of FTM over normal mergers- it is an eco-friendly time bound registration and best cost-effective process. Another reason for that it doesn’t require any judicial process concerning NCLT. Sometimes it could happen for the classes of companies eligible to opt for FTM may instead opt for the traditional merger route per normal provision given the Companies Act.

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What are the benefits of Fast Track Merger?

  • Till now, the government passes that it is not mandatory to get approval from NCLT (National Company Law Tribunal).
  • There will no need for issuing Public Advertisement.
  • It has been found that FTM provides less Administrative Burden.
  • The court will avoid a series of hearing.
  • It is all eco-friendly and has comparatively less cost.

As of now, Fast-Track Merger is the best option to go ahead in Mergers and Acquisitions because it’s saved time to complete merger through the court process and save cost too. FTM will help small companies in strengthening the position in their market.

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Checklist of Fast Track Mergers in India

  • Verify if there’s a specific clause for mergers in the Articles of Association (AoA)
  • Issue notice for the Board Meeting
  • Prepare the draft scheme of Amalgamation or Merger
  • Get the draft scheme approved in the board meeting by the director or its authorized agent
  • Prepare the Statement of Assets and Liabilities
  • Get Auditor’s Report on the Statement of Assets and Liabilities
  • Send a notice in Form CAA-9 of the proposed scheme inviting objections or suggestions, if any, within 30 days of issuing the notice from the Registrar and Official Liquidators where the registered office of the respective companies are situated or persons affected by the scheme with the attachments are given below: Scheme of Merger or Amalgamation, Pre and post Merger Shareholding of the Transferee Company, Last 3 years Audited financial statements with Auditors report thereon filed to ROC, MOA and AOA and Board Resolution
  • Valuations report for Share Exchange ratio from the registered Valuer
  • Valuation report may not be required in case of WOS Company

For a complete list of checklist and guidance, reach out to our experts.