India: Simplification of fast-track mergers
28 April 2023
Restructuring is an important aspect of any business as it helps streamline the operations of the company as well as to increase its profitability. However, many companies think twice before going in for such restructuring as it is a costly and time-consuming process and involves approvals from various regulatory authorities.
Keeping in view such concerns, the concept of fast-track merger was introduced under India’s Companies Act, 2013 to provide a simpler and more convenient procedure for the (a) merger between two or more small companies, (b) mergers between holding and subsidiary companies, (c) two or more start-up companies, or (d) one or more start-up company with one or more small company. The process was also introduced to expedite the restructuring exercises of such companies as it does not involve seeking approval from the National Company Law Tribunal. Besides seeking approvals from the shareholders and creditors the fast-track merger involves seeking approvals from the Registrar of Companies, the Regional Director and the Official Liquidator. It was observed that many of such schemes were getting stuck due to bureaucratic issues. Keeping in view such issues, the Ministry of Corporate Affairs, as a significant step towards ease of doing business in India, introduced norms which would expedite the process of fast-track mergers under Section 233 of the Companies Act, 2013. The Ministry of Corporate Affairs on May 15, 2023, issued a notification to amend the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The said changes are effective from June 15, 2023.
Following are the significant changes introduced by the aforementioned notification:
- In case no objection or suggestion is received by the Regional Director from the Registrar of Companies and Official Liquidator within a period of 30 days of receipt of copy of scheme and the Regional Director is of the opinion that the scheme is in the public interest or in the interest of creditors, it may, within 15 days of the expiry of said thirty days, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12. In case the Regional Director does not issue the confirmation order within 60 days of the receipt of the scheme, it shall be deemed that it has no objection to the scheme and a confirmation order shall be issued accordingly. Hence the Ministry has introduced the concept of deemed approval through this amendment.
- In the event objections or suggestions are received within 30 days of receipt of copy of scheme from the Registrar of Companies or Official Liquidator or both by the Regional Director and:
(a) such objections or suggestions of the Registrar of Companies or Official Liquidator are not sustainable and the Regional Director is of the opinion that the scheme is in the public interest or in the interest of creditors, it may within a period of 30 days after the expiry of 30 days referred to in point 1 above, issue a confirmation order of such scheme of merger or amalgamation in Form No. CAA.12.
(b) the central Government is of the opinion, whether on the basis of such objections or otherwise, that the scheme is not in the public interest or in the interest of creditors, it may within 60 days of the receipt of the scheme file an application before the National Company Law Tribunal in Form No. CAA.13 stating the objections or opinion and requesting that Tribunal may consider the scheme under Section 232 of the Companies Act, 2013.
The aforementioned amendments depict the Ministry’s commitment to streamline and expedite the process for approvals of fast track mergers. These changes will ensure that the regulatory authorities act in a time-bound manner, thus helping in the achievement of the primary objective behind introduction of fast-track mergers under the Companies Act, 2013.
This is a welcome change for start-ups and other small companies which are contemplating restructuring in the near future.