A Non-Banking Financial Company registered under the Companies Act which is engaged in the business of loan & advances, acquisition of shares/ debenture/ bonds or other marketable securities such as hire purchase and insurance business.
NBFC provides working capital loan and credit facilities.
- The merger is a combination of two existing entities into one new company.
- The merger is considered as a corporate strategy of combining two or more NBFCs into a single company in order to enhance the financial and operational strengths of both organizations.
- Acquiring company acquires the majority of equity shares of one or more companies.
- Acquired company surrender majority of its equity shares to an acquiring company.
In the below chart “X” company purchase the majority of equity shares of “Y” company. X will take over the assets and liabilities of company Y. The shares of the company X will be given to the shareholders of the company Y.
- Economies of Scale
- Help in growth and compete with Govt. & Multinational Banks and later can move for a bank license.
- NBFC merger helps acquirer to avoid the cost and time-consuming aspect of asset purchases, software development, and such other assignments.
- Tax benefits
- NBFC merger helps in competing with banks.
- Increase market share.
- Increase goodwill & reduce NPA
- Challenges in operation management due to the large scale of NBFC business.
- Creates distress within employee base of each organization.
- Operational Risk
- Management Issues
- An application is required to be filed with NCLT for the purpose of convening a general meeting.
- Tribunal will pass an order to conduct a general meeting of the shareholders.
- The shareholders meeting will be conducted by the company for the approval of merger scheme.
Here is the list of following required documents:
- A certified true copy of the latest audited balance sheet and Profit and loss account of transferee company.
- Shareholder’s list
- Obtain SEBI approval in case of a listed company
- Prepare the scheme of merger
- Creditor’s list
- Obtain official liquidator report
- Intimation to the regional director
- Valuation report
- Details of the legal proceedings by or against the company
- Cross questioning on material facts such as latest financial position, auditors report, and other information.
- Members or creditors or any class of them represented by those who attended the meeting.
- The scheme is in public interest which is feasible and financially viable.
- The scheme is in the interest of the company, its members, and creditors.
- The majority is acting reasonably.