Company Mergers and Arrangements: A Comparative Analysis of the 2013 and 1956 Acts, Exams of Law

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PRESENTATION ON

COMPROMISE &

ARRANGEMENT

By CS Mahesh Athavale mahesh.athavale@kanjcs.com

OLD PROVISIONS UNDER

COMPANIES ACT 1956

Companies Act, 1956 – [Sec 391-394]

Procedural Aspects

Finalization of documents relating to Merger

Scheme of Amalgamation

Valuation

Board meeting for approval of scheme

Company summon for Direction

Companies Act, 1956 – [Sec 391-394]

Procedural Aspects

Minutes of Order-Direction By Court Company summon for petition Hearing – Minutes of Order Submission to RoC/RD/OL Service of Notice to various Authorities

New Provisions-Companies Act 2013 COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS

• (^) On 7th November, 2016 Central Government issued a notification for enforcement of^ section 230-233, 235-240 , of Chapter XV of Companies Act 2013 w.e.f. 15th December, 2016.
• MCA vide notification dated 14th Dec, 2016 has issued rules i.e. The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. These rules have become effective from 15thDecember, 2016. Consequently, w.e.f. 15.12.2016 all the matters relating to Compromises, Arrangements, and Amalgamations (hereafter read as “CAA”) are being dealt with as per provisions of Companies Act, 2013 and The Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016.

Power to make compromise or make arrangement with Creditors and Members Section 230(1) Companies Act 2013 Between whom the Compromise & Arrangement can be proposed? i. between a company and its creditors or any class of them; or ii. between a company and its members or any class of them

Section 230(2) of Companies Act 2013 Applicant shall disclose to the Tribunal by affidavit- a) All material facts relating to the company, such as i. the latest financial position of the company, ii. the latest auditor’s report on the accounts of the company and iii. the pendency of any investigation or proceedings against the company b) Reduction of share capital of the company , if any, included in compromise or arrangement.

Section 230(2) of Companies Act 2013

Applicant shall disclose to the Tribunal by affidavit-

c) Any scheme of Corporate Debt Restructuring consented to by not less

than seventy five per cent. of the secured creditors in value, including

i. A Creditor’s Responsibility statement in the form No. CAA-1.

ii. safeguards for the protection of other secured and unsecured

creditors;

iii report by the auditor that the fund requirements of the company after

the corporate debt restructuring as approved shall conform to the liquidity

test based upon the estimates provided to them by the Board;

Section 230(3) of Companies Act 2013

Where meeting is proposed to be called in pursuance of an order of

Tribunal, a notice of such meeting shall be sent to all the Creditors or

class of creditors and to all the members or class of members and the

debenture-holders of the Company which shall be accompanied by

i) Details of compromise or arrangement

ii) Valuation report and their effect

iii) Effect of compromise or arrangement on material interest of

Directors or Debenture holders

Section 230(4) & 230(5)of Companies Act 2013 A notice shall provide that person may vote in meeting either themselves or through proxies or by postal ballot to the adoption of compromise or arrangement within one month from the date of receipt of such notice Right of Objections: (^) Section 230(4) Any objection to the compromise or arrangement shall be made only by

• Persons holding not less than 10% (Ten Percent). 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

Section 230(5)of Companies Act 2013

Representation by authority:

• (^) If the authorities desire to make any representation then

do so before the tribunal within a period of 30 days from

the date of receipt of such notice.

• (^) Copy of such representation shall simultaneously be sent

to the concerned companies

• (^) In case no representation is made within the 30 days then

it is presumed that authority doesn’t have any objection.

Section 230(6)of Companies Act 2013

Voting

Where at meeting majority of person representing 3/4th

in value of the creditors or class of creditors or members or class of members , as case be , agree to any compromise or arrangement and if sanctioned by the Tribunal , it shall be binding on the Company, all the creditors or class of creditors or members or class of members as case may be. Tribunal may dispense with calling of meeting if at least 90% value , agree and confirm by way of affidavit to scheme of compromise or arrangement-Section 230(9)

Merger and amalgamation of companies Section 232 of Companies Act 2013 Where an application is made to Tribunal under section 230 and it is shown to tribunal a) that compromise or arrangement has been proposed for purpose of, in connection with, scheme for reconstruction of the Company or companies involving merger or the amalgamation of any two or more companies b) that under the scheme, transfer of whole or part of undertaking to transferee company or is proposed to be divided among and transferred to two or more companies Tribunal may order meeting of creditor or class of creditors or members or class of members, to be called, held and conducted in such manner as Tribunal may direct and provision of subsection (3) to (6) of section 230shall apply mutatis mutandis.

Section 232 (2) of Companies Act

Where order is made by the Tribunal, Company is required to circulate following for the meeting

• (^) draft of proposed terms of Scheme
• (^) confirmation of filing draft scheme with Registrar
• (^) a report by directors of merging companies explaining effect of compromise on shareholders, KMP, promoters & Non Promoters Shareholders, laying out in particular share exchange ratio, specifying any special valuation difficulties.
• (^) the report of expert with regard to valuation