M&A Saga: Appointed and Effective Date Simplified

Mergers and amalgamation have 2 important dates to make them valid as per MCA and RBI. Effective date and Appointed date for both have always remained an ambiguity, but MCA recently vides their circular has cleared the doubts.

Mergers and Amalgamation have always been a method through which the companies can scale their growth.

A merger involves combining two or more firms to form a new entity or company. The new company or entity that has been formed is entitled to pay all the liabilities and taxes of the companies that are being merged

The Companies Act and SEBI are the regulatory frameworks defining and governing the acquisition or takeover.

"Appointed Date" and "Effective date" under Companies Act, 2013

Appointed Date is defined under companies act whereas effective date has no such section that explains the concept. 

What is “Appointed Date”?

Appointed date as per the Merger and Amalgamation scheme is the date on which the scheme comes into force. The appointed date is usually mentioned in the scheme of amalgamation or merger itself. 

Note: Normally appointed date is before the effective date as this is the date on which the company being merged transfers its liabilities and profits to the new entity

What is Effective Date?

Effective date as per the scheme of Merger and amalgamation is the date on which the entire scheme is complete, certified and is considered effective by the High Court order.

Note: The copy of the court order needs to be filed with the ROC, and only then the merger or amalgamation will be complete.

From “Effective date” the company that has been merged or amalgamated stands dissolved and the transfer of the liabilities and loan is effective.

Significance of "Effective date" and "Appointed Date" in Mergers

The date of appointment of a company is the deciding factor that explains in whose hand the net income of the company will be taxable. date of appointment also sets the price of the companies’ assets as per the market value at that particular point of time.

Determining the Acquisition Datedat

The date on which the acquired company or companies legally transfer the consideration to the acquirer is considered the acquisition date.

Understanding the concept based on the dictionary would constitute that  all the liabilities and the property whether intellectual or fixed is transferred to the company merging with other 

Taxation on Income

Total income of the company and the taxable amount on such is determined in any financial year.

The company being demerged and the income of such company will now be considered the income of the transferee company from the date of appointment.

The transferor company will not have to file a separate return from the date of the appointment. Any taxes paid by the transferrer will be considered to be paid by the newly merged company.

Procedural Aspects

The transferor company during the period of approval is expected to carry out a normal course of business and has to comply with the provisions of the act. Although the company is not allowed to change the structure of the company without prior approval.

The company being demerged is supposed to carry on with the compliances like at any given point in the past, and once the merger or amalgamation is confirmed the Transferor company can continue with the compliances.

The “Appointed Date” Fiasco

Effective date and Appointed date in merger and amalgamation play an effective role in the tax accumulations for the companies that are being merged and hence the date on which Scheme of merger and amalgamation takes effect was an issue of contention among the companies.

The same issues were raised in front of the high court which further referred to the Ministry of eCorporate Affairs for clarification.

The Appointed date is linked to the effective date in merger scheme which is dependent upon the RBI 

As per Companies Act 2013

Amalgamating or transferor company during the period when the approval of the scheme of the merger is pending is supposed to carry-on the normal course of business; but when it comes to specifying the returns on the dividend the company can only do so after consulting the company taking over the entire company property.

Section 232 of the companies act States

"The scheme under this section shall clearly indicate an appointed date from which it shall be effective, and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date."

Based on an interpretation of the section above it is quite apparent that when the merger or amalgamation of the company will take effect; the date form which the transfer will be considered effective is the “date of appointment”.

The contention point in the above matter arises when the company officials have to choose between the effective date or date of appointment as the date on which the new company will assume the possession of the companies being merged or amalgamated.

MCA on the above matter has laid down in its circular that the companies can choose any date based on the events of the company.

The author is a Digital Marketing expert working in the legal world to disrupt the basic working with automation techniques and is providing easy access to the lawyers to complete Trademark and company data. he is currently working in quickcompany.in and is providing a solution to the trademark and company applicants.

 

Ritu Paran 
on 15 October 2019
Published in Legal Documents
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