NBFC Merger Process in India By CS Shubham Katyal


INTRODUCTION

Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 /2013 engaged in the business of loans and advances, Assets financing, investment share, debenture or other marketable securities of a like nature, leasing, hire-purchase and insurance business.

NBFC provides working capital loan and credit facilities and investment in properties. It is useful for trading money market instruments.
 
 
KEY POINTS ABOUT MERGER
 
  •  A Merger is a deal to unite or combine two existing companies into one new company.

  • A merger is a corporate strategy of combining two or more different NBFC companies into a single company in order to enhance the financial and operational strengths of both organizations.

  • Acquiring company is a single existing company that purchases the majority of equity shares of one or more companies.

  • Acquired companies are those companies that surrender the majority of their equity shares to an acquiring company.

Merger Example

1. Company 'A' will purchase the majority of equity shares (ownership shares) of Company 'B'.

2. Company 'A' will take over the assets and liabilities of the Company 'B'.

3. The shareholders of the Company 'B' will be given the shares of Company 'A'.

4. Company A Acquiring Company.

5. Company B Acquired Company.

6. Company A (After Merger) Retains the Name of Acquiring Company.
 
 
ADVANTAGES

1. Economies of scale – Increase loan size of the NBFC, can reduce the admin cost as well.

2. Mergers of NBFC can help them to grow and compete with Govt. & MNC Banks and later can move forward with a Bank License.

3. The merger of NBFC Allows the acquirer to avoid many of the costly and time- consuming aspects of asset purchases, software development, such as the assignment of leases and bulk-sales notifications.

4. Accomplished tax-free for both parties.

5. The merger of NBFC can help to compete with the Banks.

6. Increase in Market share.

7. Increase Goodwill & Reduce NPA.
 
 
DISADVANTAGES
 
1. The large scale of NBFC Business may create challenges in operation management.

2. It creates distress within the employee base of each organization.

3. It may increase the amount of NPA & operating Risk.

4. Management issues.

5. Managers need to decide who will be in charge after they join forces.
 
 
PROCEDURE

Step 1 Sign the MOU and get approval from Board of Directors.

Step 2 Seek Consent from Bank concerned for the proposed merger/ amalgamation.

Step 3 Prepare KYC Documents of Directors & Companies.

Step 4 Business Plan and Projection.

Step 5 Seek RBI Approval for proposed Merger of NBFCs.

Step 6 Issue Public notice after RBI Approval.

Final Step File an Application to National Company Law Tribunal under Section 230-233 of Companies Act, 2013 seeking the order for mergers or amalgamations with other companies or NBFCs.
 
 
NCLT APPLICATION (FINAL STEP)
 
An application shall be made to the respective high court to convene a general meeting of the shareholder

The court has no power to dispense with the holding of meeting even though the shareholders might have unanimously approved the scheme.

The company will conduct Shareholder meeting for the approval of the merger scheme of the company
Documents Required.

1. A certified true copy of the latest audited B/S and P&L A/c of the transferee company.

2. List of shareholders.

3. In case of Listed NBFC Companies, obtain SEBI’s prior permission.

4. Prepare the Scheme of Amalgamation and Explanatory Statement.

5. An application can also be made by the transferee of shares.

6. List of creditors with their Outstanding Balance.

7. Obtain the Official Liquidator’s Report.

8. Intimation to regional director of MCA.

9. Valuation report of the company.

10. Details of the legal proceeding by or against the company, contract summary Document Checklist for NBFC Merger.
 
 
NCLT CHECKLIST BEFORE APPROVAL
 
1. Cross questioning on material facts including latest financial position, auditors report and other information.

2. Members or creditors or any class of them are fairly represented by those who attended the meeting.

3. There is no oblique motive of the scheme.

4. The scheme is based on commercial consideration, workable, feasible, financially viable and in public interest.

5. The scheme is in the interest of the company, members or creditors.

6. The majority is acting reasonably, prudently and real NCLT Checklist before Approval.
 

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