Legal compliances - post deal:

As board room handshakes lead to concluding deals, a feeling of elation is witnessed among managers. Issues that are not strategically important like obtaining regulatory approval or complying with legal formalities after closing a transaction are often given a low priority. However, they are a more daunting and equally important aspect of a deal. Apart from ignorance of importance of the legal issues many managers are not clear about what legal compliances to be taken care of. In light of the same here is a very useful post merger checklist.

Transferor Company / Transferee Company
Company Law
Call Board Meeting for (a) adopting merger order and (b) authorizing director to file the same with Roc office. / Call Board Meeting for (a), (b), (c) Fixing record date (in case of listed company - in consultation with stock exchanges) for allotment of shares to shareholders of Transferor Company (d) appointment of director of the transferor co as director of the transferee Co, if agreed (e) increasing /consolidation of capital, etc.
E-filing Form No 21 and submitting with ROC hard copy of form 21 along with original copy of Scheme of Amalgamation and Order.
E-file other forms and required documents with ROC for appointment of new directors, increasing capital, change in object clause, etc.
Printing of Amalgamation Order and Scheme and attaching to every copy of Memorandum of Association and filing the fresh Copy of MOA & AOA within 30 days from filing of the Order and Scheme

Requirements of Stock Exchanges (SE) and SEBI (Applicable in case of a listed company)

TE Co. to intimate SE about the filing of order and the effective date
TE Co. toinform SE about the amendment in object clause, appointment of new director, company secretary, etc.
TE Co. tointimate SE about the change in promoters, their holdings, etc by complying with the requirements of Takeover Regulations-7 and Regulations 13 of Insider Trading of SEBI.
TE Co. tofile application with SE for listing of new shares.
TE Co. tofile application through designated Stock Exchange for obtaining approval from SEBI for exemption under rule 19(2)(b) for listing of shares without public issue
TE Co. tofollow up with SE and submitting the required documents called for to ensure commencement of trading of new shares.
TR Co. to dispatch letter to its shareholders
FEMA
If persons resident outside India are shareholders of transferor or new company or shares are issued to Persons Resident Outside India as a result of any merger, demerger etc approved by a Court in India.
Make Application to RBI in form FC-GPR within 30 days with the RBI giving:
(a)full details of the shares held by persons resident outside India in the transferor and the transferee or new company, before and after merger/ amalgamation/ reconstruction
(b) Furnish a confirmation that all the terms and conditions stipulated in the scheme approved by the Court have been complied with.
In case of issue of non-convertible redeemable preference shares to NRIs/FIIs prior approval of RBI is to be obtained
Stamp Duty
The stamp duty is to be paid on Transferee Company’s order only however Transferor Company’s order also needs to be stamped.
To apply for adjudication to the collector for determination of stamp duty payable on court order under section 31 of the Bombay Stamp Act, 1958.
In case the transferor and transferee companies have their registered offices in different states, the duty will be levied and collected according to the laws of the state in which the registered office of the transferee company is situated.
If the transferor company holds property in a state/s other than the state in which its registered office is situated, then it will have to pay the duty in those states also. However it can claim a setoff of duty already paid on the order of amalgamation.
Income Tax
Intimating the concerned officers about the merger. Also enclose copy of Order.
Requesting concerned officer to transfer the file to the concerned officer of the Transferee Co.
Making application for cancellation of PAN No to the designated Income Tax Officer
Intimating the TDS officers and making application for cancelling the TAN no. and transfer of TDS and Advance Tax amount for current year to Transferee Company. / Intimating the concerned officers about the merger. Also enclose copy of Order.
In case the amalgamating company has unabsorbed loss and/or accumulated business losses, to take the benefit of the same the transferee company shall comply with the conditions of Sec. 2(1)(b) and Sec.72A of the Income Tax Act,1961

Central Excise

Intimate the excise department about the amalgamation along with the copy of the High court order
The transferor company should surrender its Registration certificate.
The transferor company should transfer its stock of inputs and in process goods to the transferee company and these should be accounted to the satisfaction of the Commissioner.
The transferor company should make an application to the Commissioner of Central Excise for permission to transfer the unutilized cenvat credit to the transferee company and comply with the conditions imposed by the Commissioner.
The transferor company should make an application for withdrawal of balance in Personal Ledger Account in terms of Rule 9(1A) of the Central Excise Rules.
File the returns and declarations till the effective date i.e. date of order of the court.
Apply to the Commissioner of Central Excise for transfer of cenvat credit to the transferee. The following conditions should be satisfied for this purpose: -
The scheme provides for the transfer for the entire stock of inputs and in process goods to the transferee company.
The transferee must agree to take over all the liabilities of the transferor company.
After the transfer, the stock of goods should be accounted to the satisfaction to the Commissioner.
Surrender the Registration Certificate.
Apply to the Commissioner for withdrawal of balance in the Personal Ledger Account. / The transferee company has to complete all the formalities as if it has started a new factory such as: -
Decide the date of filing the order of the Registrar of Companies i.e. effective date. The effective date is the cutoff date from which the transferee company will stop excise records of the transferor company
The transferee company will have to obtain a fresh Registration Certificate in respect of the factory/s or depot/s of the transferor company, which have been transferred to it in the scheme of amalgamation.
If the transferor company is only a registered dealer and not a manufacturer and the business of the transferor are shifted to the premises of the transferee, the transferee company will have to obtain endorsement on its Registration certificate in respect of the new products.
Intimate to the Central Excise Officer regarding the transfer of stock in RG1 Account of the transferor company. File an application to obtain permission for maintenance of new RG1 register.
Complete other procedural formalities such as :-
The company should file a fresh declaration of goods produced or manufactured in the factory under rule 173B of the Central Excise Rules.
File a fresh marketing pattern, discount structure and other prescribed details in terms of rule 173C of the Central Excise Rules.
If the transferee company does not hold Personal Ledger Account prior to amalgamation, it should apply for opening a new account etc. etc.
Complete the technical formalities such as changing the names on the stock of invoices of the transferor company etc.
Obtain a fresh Registration Certificate in respect of the factory/s of the transferor company.
Apply for permission of a Personal Ledger Account, if such an account is not already maintained.
Fresh declaration of goods manufactured or produced to be filed.
Fresh marketing pattern, discount structure and other details to be filed.
Ensure that the cenvat credit is transferred to the transferee company.
Permission to maintain new RG1 register.
Transfer of stock from transferor’s RG1 register to transferee’s RG1 register.

Service Tax

Intimate the department about the amalgamation along with the copy of the High court order
 The transferor company should surrender its Registration certificate. / The transferee company has to complete all the formalities as if it has started a newly such as: -
The transferor company should make an application to the Commissioner of Central Excise for permission to transfer the unutilized Cenvat Credit to the transferee company and comply with the conditions imposed by the Commissioner. / Decide the date of filing the order of the Registrar of Companies i.e. effective date. The effective date is the cutoff date from which the transferee company will stop service tax records of the transferor company
Apply to the Commissioner of Central Excise for transfer of cenvat credit to the Transferee Co.The following conditions should be satisfied for this purpose:
The scheme provides for the transfer for the entire inputs tax to the transferee company.
The transferee must agree to take over all the liabilities of the transferor company.
Surrender the Registration Certificate. / The business of the transferor are shifted to the premises of the transferee, the transferee company will have to obtain endorsement on its Registration certificate in respect of the new services.
Complete the technical formalities such as changing the names on invoices of the transferor company etc.
Obtain a fresh Registration Certificate in respect of the factory/s of the transferor company.
Ensure that the cenvat credit is transferred to the transferee company.
VAT
Intimate the department about the amalgamation along with the copy of the High court order
The Transferor Company is to continue paying value added tax liability till the effective date and not only upto appointed date.
The Transferor Company should file the regular VAT Tax returns up to the effective date.
All the transactions of Transferor Company even with Transferee Company up to effective date should be on principal to principal basis.
The sales tax registration of the Transferor Company stands cancelled as on effective date. The application will have to be made within 30 days for cancellation / The Transferee Company has to apply for the fresh registration (Sec 7 of the Central Sales Tax Act, 1956) in case it does not have the Sales Tax registration in the respective place.
The transferee company will have to use its own sales tax number after the effective date.
The transferee company has to amend the certificate for new place of business and nature of business i.e. of transferor Company under the same registration number.
The transferee company can continue using the old name as a trade name and can write its name under it if the business of the company requires such type of adjustment.
Accounting
Pass Accounting entry in the books of Transferor Company transferring all the assets & liabilities to Transferee Company as per the accounting treatment mentioned in the scheme of Amalgamation. / Pass Accounting entry in the Books of Transferee Company recording all the assets & liabilities acquired from Transferor Company and treatment of difference as per scheme of Amalgamation. If not specified in scheme as per the Accounting Standard – 14.
While recording the value of assets ensure that Gross block and depreciation are recorded separately (i.e. don’t add figure of net block to the gross block of transferee company)
Other miscellaneous
Giving intimations to Debtors & Creditors by way of letter that since the transferor Company has merged with Transferee Company you are requested to make the payments to Transferee Company (in case of Debtors) and payments of your amount will be made by Transferee Company (in case of creditors)
Giving information by way of letter to Banks and institution about the merger and transferring the balances to Transferee Company a/c or changing the name of accounts and also about transferring the limits enjoyed in the name of Transferor Company to Transferee Company. / If any charges are created file a fresh form 13 & 8 along-with the letter of Bank for transferring the charges
Take appropriate steps to ensure transfer of Lease agreement entered into by Transferor Co to Transferee Company