Procedure Of Demerger And Checklist For Demerger

Procedure of Demerger and Checklist For Demerger

Preparation of scheme of demerger-

The articles should authorise the Board to effect such an arrangement or else the Articles of Association has to be altered by a special resolution.A scheme is prepared in consultation with all the interested parties and in principle approval of the board of directors is obtained at the meeting after issuing notice to all the directors as per section 173 of the Companies Act, 2013. Every officer of the company whose duty it is to give notice of the meeting and fails to do so will be liable to penalty of Rs 20000. Appoint an independent valuer for valuing shares to determine the share exchange ratio and merchant banker to give fairness report on valuation of shares / assets done by the independent valuer.

2. Both the demerged company and resulting company must make an application to respective high Courts to take out judge’s summons ex parte for a meeting of the members/ creditors or any class of them likely to be affected by the proposed demerger and its details as an exhibit along with an affidavit, after the receipt of observation letter from the stock exchanges.
3. The aforesaid summons shall be in Form no 33 of the Companies (Court) Rules, 1959 and an affidavit in support must be in Form no 34. Affidavit must be before filing, either notarised by the Notary public or sworn before the oath commissioner.
4. In the application for summons the class of members or creditors whose meetings are to be held should be indicated.
5. Upon hearing of the summons or any adjourned hearing thereof, the Judge shall, unless he thinks fit for any reason to dismiss summon, give such directions as he may think necessary in respect of the following matters-

Determining the class or classes of creditors and/of members whose meeting have to be held for the purpose of considering the proposed demerger.Fixing the time and place of such meetings.Appointing a chairman or chairmen for the meeting or meetings to be held.Fixing the quorum and the procedure to be followed at the meeting including voting by proxy.Determining the values of the creditors and/or members or of any class whose meetings have to be held.Notice to be given of the meeting and the advertisement of such notice.The time within which the chairman of the meeting is to report to the Court and the result of the meeting.

The order made on the summons shall be in Form No. 35 with such variations as may be necessary. 6. The notice of the meeting to be given to the creditors and/ or members, or to the creditors or members of any class, as the case may be, shall be in Form No. 36, and shall be sent to them individually the chairman appointed for the meeting, or, if the Court so directs, by the company (or its liquidator), or any other person as the Court may direct, by post under certificate of posting to their last known address not less than 21 clear days before the date fixed for the meeting. It shall be accompanied by a copy of the proposed compromise or arrangement and of the statement required to be furnished under section 393, and a form of proxy in Form No. 37. 7. The notice of the meeting shall be advertised in such newspapers and in such manner as the Judge may direct, not less than 21 clear days before the date fixed for the meeting. The advertisement shall be in Form No. 38. 8. Furnish to every member entitled to attend the meeting convened by the concerned High Court free of charge and within 24 hours of requisition being made in this behalf a copy of the proposed demerger together with a statement required to be furnished under section 393 of the Companies Act, 1956 unless the same has already been furnished to the member 9. The chairman appointed for the meeting of the company or other person directed to issue the advertisement and the notices of the meeting shall file an affidavit not less than seven days before the date fixed for the holding of the meeting or the holding of the first of the meetings, as the case may be showing that the directions regarding the issue of notices and the advertisement have been duly complied with. 10. After the meeting is held as directed by the court, and if in the meeting majority in number representing three-fourths in value of the members or creditors or their class, as the case may be present either in person or by proxy agree to the demerger, the scheme when sanctioned by the Court shall be binding upon all members or creditors or the class as the case may be. 11. The concerned High Court before sanctioning the scheme needs to be satisfied that the company moving the application has disclosed by affidavit or otherwise, all material facts relating o the company, such as the latest financial position of the company, latest auditor’s report on the accounts of the company, the pendency of any investigation proceedings under sections 235 to 251 of the Companies Act, 1956 or applicable provisions of Chapter XIV of the Companies Act, 2013 dealing with Inspection, Inquiry and Investigation. 12. Furnish all the material facts and the documents in this behalf along with the application itself for taking out the summons. 13. The chairman has to give a report to the High Court after the demerger is sanctioned by the shareholders and creditors. 14. On such report being given, a petition in Form no 40 of the Companies (Court) Rules, 1959 should be moved for confirming the scheme. 15. The concerned high court shall fix a date of hearing of the petition and a notice will be issued in the newspapers in which the original notice of the meeting was given about ten days before the date of hearing. 16. When the concerned High Court sanctions the scheme, the said court will pass an order and in the order such directions as the court deems fit. 17. The Court shall also direct that a certified copy of the order shall be filed with the ROC within 14 days from the date of order or within such time as the Court may deem fit. The order shall be in Form 41 of Companies (Court) Rules, 1959. 18. After the filing of the order with the ROC, it shall become fully binding and effective 19. In future, with any memorandum of association that may be issued by the company, a copy of the order of the concerned High Court must be annexed. In case of default, every officer in default is punishable with fine of Rs 100 for each copy in which default is made.