Merger & Acquisition Schemes – The Delay Will Be Over!

Clearly, the NCLT was not supposed to deal with IBC matters and it seems to be overburdened, but the fact remains that merger and acquisition schemes cannot wait endlessly and at present, there are serious delays in approval of arrangement plans. has been

some comprehensive statistics

Out of about 21,000 cases pending in the NCLT, over 13,000 are IBC cases and only 1,200 merger and acquisition cases (schemes); The rest (about 6,500 cases) are covered under residual provisions of the Companies Act, such as harassment and mismanagement. State-wise details of cases pending before NCLT benches are not available, but likely, Mumbai and Delhi will account for the majority of cases, and to a lesser extent, Bangalore.

Mumbai has 5 benches, Delhi has 5 benches, but Bangalore has only 1 bench. These benches are not fully staffed as of now, and therefore, it is imperative that the posts be filled up immediately and the matter is taken forward.

Delay – Major Reasons

Arrangement plans have 3 broad phases after the plans are approved by the board of directors of the interested merger or merged companies. These broad steps are (a) application for admission to the scheme, (b) acceptance of the petition; and (c) the final hearing.

Between the initial application entry and the petition entry phase, the shareholders and creditors’ meetings should be held until the same is terminated by the NCLT; In private companies where there are shareholders and creditors who have given consent in writing, logically, these meetings should be terminated. If these are not eliminated, it is often unnecessarily to undergo procedures that are not needed. For example, there have been situations where creditors have been paid after the plan has been filed, yet meetings are insisted upon; Will a creditor with any business sense be willing to attend the meeting where it is paid? The answer is not clear, but it seems to have lost its commercial reality and unnecessarily causes heavy harassment and does not benefit anyone. Further, in cases where a majority of creditors have already given their consent, holding a meeting is an operational challenge in terms of sending notices, ensuring attendance, etc., especially for companies that have multiple creditors. Therefore, such issues (i.e. there is a need to abstain from meetings of shareholders and creditors where they have consented or there is no prejudice to their interest), need to be addressed through a circular or similar mechanism. Is.

One of the biggest hurdles is that the time between filing an application and admission is often 3-4 months, and often more. Application admission is not an approval; It is just that the NCLT accepts that the scheme meets the broad regulatory conditions and should be accepted. If this process takes 3-4 months or more, the ease of doing business ends at that stage itself! Let us remember that, if the applicant is a listed company, the approval of the stock exchange is also required, and in turn, the stock exchange has to consult SEBI and get their views and this leads to another delay.

Additionally, the fact that each Bench of the NCLT has its own set of requirements, as there is no pre-determined format of application and list of documents to be submitted, adds to the paperwork and causes undue delay. . There is a need for uniformity across the board, and this needs to be addressed internally by the NCLT and communicated by a circular or notice, so as to avoid confusion.

Between the acceptance of the application and the acceptance of the petition, in addition to the above issues, notice is to be given to the Regional Director and the Official Liquidator (if any merger is involved) and they have to submit their final report to the NCLT. There is also a need to shorten the time frame for submission of these reports as an important element to speed things up. Here too, it is important that the MCA comes out with some circular that the report should be more than an exception and should not be such that every aspect of the scheme should be commented upon or objected to.

Epilogue

Mergers and demergers are usually driven by business need. For example, two companies may merge because it makes sense to do so to combat competition or to pool resources and reduce costs. A company may separate the two undertakings for various reasons; For example, it may be just a mirror image dimmer to separate 2 separate unrelated businesses. Such initiatives are very disruptive to the business anyway, and furthermore, if there are long delays, it creates more business disruption, annoys employees and is a significant drain on management’s time and energy. . This is even more so if mergers or demergers are involved, completely unrelated entities; Delays can also lead to loss of shareholder value and investor panic. One would really hope that the delay aspect would be looked into and the functioning of the NCLT would factor into this issue; Time is money and the issue of delay should be looked at very seriously.

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