Companies Bill to change corporate restructuring

The Companies Bill finally received presidential assent after being passed by the Rajya Sabha on 8 August. The bill designates the National Company Law Tribunal as the authority to decide on matters relating to compromise, arrangement and amalgamation (reconstruction) and no longer necessitates approval of the high court.

Key changes

Frivolous litigation: The present Companies Act, 1956, does not provide any threshold for raising objections and in the past shareholders with minuscule holdings and creditors with insignificant outstanding debt have objected to schemes for reconstruction on frivolous grounds. Under the bill objections can be raised only by shareholders holding a minimum 10% stake or creditors holding more than 5% of the total outstanding debt as per the latest financials.

Fast-track merger: Under the act, in an amalgamation of a wholly owned subsidiary into a holding company, dispensation is sought from the procedure on the basis of judicial precedents. However, the principle is not unanimously applied and followed by all courts. The bill provides a short and time-bound procedure for the merger of two small companies or between a holding company and its wholly owned subsidiary. The scheme after being approved by 90% in value of the creditors will be filed with the central government (CG), registrar of companies (ROC) and official liquidator (OL). It will be approved by the CG where no objections are received from the ROC or the OL.

Ranjana Roy Gawai is the managing partner and Safeena Mendiratta is a senior associate at RRG & Associates.