The new Companies Act offers greater clarity on mergers and acquisitions
At long last, it is almost time to bid adieu to the 57-year-old Companies Act, 1956, as India Inc readies itself for the Companies Act, 2013. While framing the new Act, the learnings from six decades proved very useful. Now, great emphasis has been laid on governance and transparency. A notable feature of the Act is that a significant portion of the Act lays down rules that allow a desired level of flexibility, which helps deal with the ever-changing corporate environment. However, for some time, both the Acts are going to be applicable, as the new Act has only been implemented in parts. Therefore, initially, there could be some overlapping and confusion that needs to be dealt with. Provisions under the old Act that relate to mergers and acquisitions, buyback of shares, restructuring of capital, etc, have evolved over a period of time, based on many landmark rulings. The new Act, to a great extent, has taken note of these rulings, bringing clarity on many issues.
Under the 2013 Act, National Company Law Tribunal (NCLT) approval shall be required for all schemes of amalgamation/arrangements. Over the years, many different procedures were adopted by various high courts to approve such schemes. However, with a common framework, it is expected that the procedure would be standardised across the country.
Going forward, all restructuring will need to comply with the prescribed accounting standards. These standards shall be applicable to all companies, listed as well as unlisted, instead of being applicable to just listed companies as it is now. This will enable for investors and shareholders a fair comparison of the financial statements of companies.
A new concept of fast-track merger has been introduced wherein NCLT approval is not required if merger is between a parent company and its wholly-owned subsidiary, two or more small companies, or such other class as may be prescribed. It has been introduced on the premise that in such mergers, public interest is generally not affected and, therefore, this should be allowed without regulatory approval, subject to certain checks and balances.
In the past, many restructurings were either delayed or stalled on account of frivolous litigation from minority shareholders or creditors with minuscule shareholding or interest in the company. In order to avoid such frivolous objections, a provision has been inserted whereby only those minority shareholders who together own more than 10% of