Merger, Demerger, Acquisition by Share

Business restructuring may be achieved by a variety of methods, such as, Merger, Demerger / Spin Off, Slump Sale, Acquisition of Shares, etc. Each method has its own pros and cons and must be selected keeping in mind the objectives to be achieved. While adopting a particular method, we consider the following legal factors, wherever applies to a Private , Public-Unlisted and Public-Listed Companies, in addition to the commercial and financial justification:

Broad Checklist for Mergers

Listed companies must also submit to the stock exchange, an Auditors’ Certificate to the effect that the accounting treatment contained in such schemes is in compliance with all the applicable Accounting Standards.

Listed Companies must comply with the requirements of SEBI Cir CFD /DIL/1/2014 which lays down various procedures for obtaining SEBI’s permission. These include, obtaining share holders’ approval through Postal Ballot and eVoting in certain cases, e.g., where the promoters would be issued additional shares under the Scheme, where related parties are involved in the Scheme, etc.

The Merger Scheme / Scheme of Amalgamation must cover the following:

  1. Definitions of important terms such as Appointed Date, Effective Date, Record Date for issue of shares, etc.
  2. Background, capital, history, etc. of the Transferor and Transferee Company
  3. Rationale of the Scheme
  4. Amalgamation of Transferor with Transferee Company and vesting of its undertaking, assets and liabilities in the Transferee Company. Reduction of capital, if any, of the Transferee
  5. Issue of securities, etc. by Transferee to share holders of Transferor, Share Exchange Ratio, Valuation Report, etc.
  6. Increase in Authorised Capital of Transferee, if required
  7. The Date from when the Scheme comes into operation
  8. Accounting Treatment of the amalgamation by the Transferee
  9. All contracts, deeds, bonds, instruments, executed by the Transferor to be binding on and enforceable against the Transferee
  10. All legal proceedings, by or against the Transferor to be binding on and enforceable against the Transferee
  11. Transferee to carry on Transferor’ business until the Effective Date
  12. Applications to relevant High Courts for their approval
  13. All employees of Transferor to become the employees of Transferee
  14. No dividends, bonus, rights, further shares to be issued by either company without prior approval of the other company
  15. The approvals / sanctions upon which the Scheme is conditional and effect of non-receipt of such approvals
  16. Sharing of merger costs and expenses
  17. Change of Board of Directors of Transferee, if any
  18. Dissolution without Winding-Up of Transferor
  19. Change of name and registered office of the Transferee, if applicable

Additional Checklist for Demergers

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