Reorganization is changing the way something is organized. It is a form of restructuring or reshuffling. In the sense of a company, it means a change in the internal structure, it can be done by the way of compromise, arrangement or amalgamation and merger etc.
The reasons for the same can be
- Restatement of balance sheet
- Improving governance process
- Clarity to investors
- Business risk management
- Stock and credit re rating
- Positioning the business to be more competitive
It usually happens to overcome major business problems and improve profitability and efficiency.
Compromise and Arrangement
Section 230 of the Companies Act 2013 gives the company powers to compromise and make arrangements with the creditors and members. Compromise means a settlement whereas arrangement has a wider scope. This can be done with all the creditors or members or a class of them.
The tribunal has the power to call a meeting if the company or creditors or members or a liquidator applies for it.
As per section 230(2)[1] the company has to declare by an affidavit all important facts, reduction in share capital or restructuring of debt etc. Sub section 3 talks of the notice to be sent individually to each registered address along with details regarding the compromise/arrangement.
An objection regarding the same can only be raised by someone not having less than 10% of total shareholding or 5% of total debt.
As per section 231[2] the tribunal has powers to enforce such a compromise or arrangement.
Merger and Amalgamation
These terms have not been defined under the Companies Act 2013 and are often used interchangeably. They do have a thin difference. A merger is fusion of two companies which leads to absorption and loss of identity for one company. Whereas amalgamation is coming together of two or more companies and forming one new entity.
By the process of amalgamation, all the property; liabilities and shareholding of at least 3/4th of total shareholding of the amalgamating company become the property, liabilities and shareholding of the amalgamated company.
Section 232(1)[3] gives the tribunal power to call a meeting in case of merger or amalgamation.
For a simplified amalgamation section 233[4] provides a streamlined procedure for small companies or amalgamation between a holding and wholly subsidiary company. Section 234[5] deals with amalgamation with a foreign company. Prior approval of RBI is needed in such a case.
Dissenting Shareholders
According to section 235[6] a dissenting shareholder is one who has not assented or failed to or refused to transfer his or her shares to the transferee company. The process of acquisition from dissenting shareholders is also mentioned in the same section
Conclusion
Thus, the Companies Act 2013 is a comprehensive guide regarding the process, powers and procedure in which a company can be restructured.
Reference
[1] Section 230(2) of the Companies Act 2013.
[2] Section 231 of the Companies Act 2013
[3] Section 232(1) of the Companies Act 2013
[4] Section 233 of the Companies Act 2013
[5] Section 234 of the Companies Act 2013
[6] Section 235 of the Companies Act 2013
