B Com Exam > B Com Notes > Company Law > Introduction - Merger, De-merger, Amalgamation, Compromises & Arrangements, Company Law
Introduction - Merger, De-merger, Amalgamation, Compromises & Arrangements, Company Law | Company Law - B Com PDF Download
Introduction
Corporate restructuring is one of the method to achieve this objective. Mergers, demerger, amalgamation, compromise and arrangements are the different modes of corporate restructuring. The Companies Act provides the power to the Court for sanctioning schemes of compromise and arrangement.
Compromise
'Compromise' is a term which implies the existence of a dispute such as relating to rights. It means settlement or adjustment of claims in dispute by mutual concessions. If the members have to gave up their rights entirely. It will not be compromise [NFU Development Trust Ltd., Re (1973) 1 All E.R. 135]
There can be no 'compromise' unless there is first a dispute [Guardian Assurance Co., Re(1917) 1 Ch. 431].
Arrangement
The term 'arrangement' is of very wide import. It includes a reorganization of the share capital of a company by the consolidation of shares of different classes, or by the division of share into shares of different classes or by both these methods. All modes of reorganising the share capital, including interference with preferential and other special rights attached to shares, can properly form part of an arrangement with members [Investment Corp. of India Ltd., Re (1987) 61 Comp. Cas.92 (Bom)].
Amalgamation
'Amalgamation' is a legal process by which two or more companies are joined together to form a new entity or one or more companies are to be absorbed or blended with another and as a consequence the amalgamating company loses its existence and its shareholders become the shareholders of new company or the amalgamated company.
The shareholders of each amalgamating company become the shareholders in the amalgamated company. To give a simple example of amalgamation, we may say X Ltd. and Y Ltd. form Z Ltd. and merge their legal identities into Z Ltd. It may be said in another way that X Ltd. + Y Ltd. = Z. Ltd.
The word amalgamation is not defined anywhere in the Companies Act, 2013.
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FAQs on Introduction - Merger, De-merger, Amalgamation, Compromises & Arrangements, Company Law - Company Law - B Com
| 1. What is a merger? |  |
Ans. A merger is a corporate restructuring strategy in which two or more companies combine to form a single entity. It involves the integration of assets, liabilities, and operations of the merging companies to create a stronger and more competitive business entity.
| 2. What is a de-merger? | |
Ans. A de-merger, also known as a spin-off, is a corporate strategy in which a company divides itself into two or more separate entities. It involves the transfer of specific assets, liabilities, and operations to the newly formed entities, resulting in the independent existence of each entity.
| 3. What is an amalgamation? | |
Ans. Amalgamation refers to the process of combining two or more companies into a single entity, where one company absorbs the other(s). It involves the transfer of assets, liabilities, and operations to the amalgamated company, resulting in the dissolution of the absorbed company.
| 4. What are compromises and arrangements in company law? | |
Ans. Compromises and arrangements are legal mechanisms provided under company law to facilitate corporate restructuring. They involve making agreements or arrangements between a company and its creditors, shareholders, or members to resolve certain issues or concerns. These mechanisms can be used to restructure debt, alter share capital, or facilitate mergers and acquisitions.
| 5. How are compromises and arrangements approved in company law? | |
Ans. Compromises and arrangements in company law require approval from the relevant stakeholders and the court. The process typically involves obtaining consent from a specific majority of shareholders or creditors, followed by an application to the court for sanctioning the proposed compromise or arrangement. The court will consider various factors, including fairness, reasonableness, and the interests of the stakeholders, before granting approval.
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