Ministry clears the air on ‘appointed date’ of M&As

Our Bureau New Delhi | Updated on August 21, 2019 Published on August 21, 2019

Move will to lead to harmonisation of practices, provide clarity on accounting treatment

Companies do have the flexibility to choose the ‘appointed date’ of a merger/amalgamation based on occurrence of an event, the Corporate Affairs Ministry (MCA) has said.

However, the event concerned should be relevant to the mergers between the companies, it said.

The clarification, which came in the form of a circular, will allow the companies concerned to function independently till such event is actually materialised.

The MCA has further clarified that the term “appointed date” used in section 232 (6) would be deemed to be the “acquisition date” for the purpose of conforming to IndAS standard dealing with business combinations.

The clarification would lead to harmonisation of practices in ascertaining the ‘appointed date’ of merger/amalgamation and provide due clarity on the accounting treatment, thereby allowing stakeholders to align the “appointed date” of merger/amalgamation in accordance with their business considerations or legal requirements. This would also contribute significantly in the ease of doing business, the MCA has said.

A view was being taken in certain quarters that the “appointed date” in the scheme need always be a definite calendar date, which led to difficulties for companies intending to give effect to their merger at a future/ event-linked date, based on business considerations, fulfilling legal requirements such as procurement of license from sectoral regulators etc.

Experts’ take

Commenting on the MCA move, Saurav Kumar, Partner, Induslaw, a law firm, said the clarification was much needed for ease of doing business. The practice currently is to have the appointed date as a fixed date on which the scheme would be effective.

“This sometimes led to confusion around whether the transferor and transferee companies had to function as a merged entity from such date even though the necessary conditions precedent for fulfilling the business objectives were not fulfilled. The clarification would allow for a purpose-based approach to reorganise companies besides resolving the unnecessary confusion,” he said.

Welcome clarification

Harish Kumar, Partner, L&L Partners, said, “The MCA circular aimed at removing the inevitable ambiguity regarding scope of ‘appointed date’ (as referred to in Section 232(6) of the Companies Act) is a welcome clarification.

With this MCA clarification, not only the said ambiguity (surrounding appointed date) will be put to an end, but this would also commercially align the implementation of a scheme becoming effective from a particular chosen date as linked with occurrence of a specified event (being appointed date under the scheme).”

Published on August 21, 2019
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