NBFC Merger

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.

Merger

  • 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.

Example

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.

Advantages

  • 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

 

Disadvantages

  • Challenges in operation management due to the large scale of NBFC business.
  • Creates distress within employee base of each organization.
  • Operational Risk
  • Management Issues

Procedure

 

NCLT Application

  • 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.

Documents Required

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

NCLT checklist

  • 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.