MCA proposes wider scope for fast track M&As under present rules

MCA has proposed that unlisted cos which have reasonable debt exposure of less than Rs 50 cr and have not defaulted on repayment can go through the fast track mechanism under Sec 233 of Companies Act

The Ministry of Corporate Affairs’ (MCA’s) proposal to widen the scope of the present rules of mergers and amalgamations to include more unlisted companies and subsidiaries of companies that are not wholly owned under the fast-track mechanism will reduce the compliance burden and boost agility of start-ups and micro-, small- and medium-enterprises (MSMEs), according to experts.

 

“By bringing unlisted subsidiaries, fellow subsidiaries, and low debt companies into the ambit of quick approvals, the government is clearly addressing industry demands for ease of doing business, post-pandemic corporate restructuring, and group-level consolidations,” said Sonam Chandwani, managing partner, KS Legal & Associates.

 

The fast-track mechanism for mergers does not require the involvement of the National Company Law Tribunal and can be availed by small companies, startups, and for mergers between holding companies and their wholly-owned subsidiaries.

 

The MCA has proposed that unlisted companies with reasonable debt exposure of less than ₹50 crore and no default in repayment can go through the fast-track mechanism under Section 233 of the Companies Act.

 

A subsidiary other than a wholly-owned subsidiary may also be allowed to merge with its holding company under Section 233 on the condition that such a subsidiary should not be a listed company, MCA has said.

 

It has also proposed that mergers between fellow subsidiary companies belonging to the same group would also be allowed to go through the fast-track mechanism. “It is proposed to cover only unlisted fellow subsidiaries under this category,” MCA said.

 

The proposed changes also include the merger of a foreign holding company with its wholly-owned Indian subsidiary through the fast-track mechanism.

 

Finance Minister Nirmala Sitharaman, in her Budget speech, had said that the government would rationalise the requirements and procedures for speedy approval of company mergers. She had said that the scope for fast-track mergers will be widened and the process made simpler. 

 

Under the current mechanism, only specific categories of companies benefit from the fast-track route, including two or more small companies, wholly-owned subsidiaries, and their holding companies.

 

Experts believe that expanding the mechanism to include mid-sized businesses, startups, and distressed entities undergoing restructuring under the Insolvency and Bankruptcy Code will be a gamechanger that will accelerate consolidation.

 

“This is a much-needed initiative in today’s growing trend of startup companies. It brings in greater flexibility with respect to group level corporate restructuring by allowing subsidiaries other than wholly-owned ones to merge with holding companies,” said Piyush Agrawal, partner, Aquilaw.