In the case of merger and demerger, two dates are crucial, the “Appointed Date” and secondly the “Effective Date”. Corporate managers spend a lot of time to plan the exact timing of these dates. ‘Appointed Date’ is normally arranged to secure the interests & objects of the respective companies. And ‘Effective Date’ is finalized by High Court depends on upon filing of a final order of High Court with Registrar of Companies.
Importance of ‘Appointed Date’ & ‘Effective Date’:
Any scheme of compromise or arrangement should identify a date in the scheme itself as ‘Appointed Date’. This ‘appointed date’ is crucial for arriving at values of assets and liabilities appearing in the books of Accounts both for the purpose of the transfer to the Transferee company and also for arriving at the value of shares for the transferor and transferee company viz. exchange ratio. Generally, the first day of a month or the first day of a financial year is identified as the ‘appointed date’, though the Court has the discretion to decide any date as ‘transfer date’.
The ‘Effective Date’ on the other hand is the date on which the transferee company files the order of the High Court sanctioning the scheme with the Registrar of Companies for registration and when the order has so filed the amalgamation or arrangement becomes effective or having come into force from the ‘Appointed date’. The effective date is subsequent date and the company has no control over it.
Issues regarding ‘Appointed Date’ & ‘Effective Date’ and their effects on Various Aspects of Restructuring:
1. Identification of Assets & Liabilities of Transferor Company: StarStuded
As per the requirements of Section 391 to 394 of the Companies Act, 1956 the Transferor company should identify and quantify the assets and liabilities which are sought to be transferred to the transferee company under merger or demerger. This identification & quantification of assets and liabilities should be done as on Appointed Date.
The details of such assets & liabilities may be annexed as a schedule to the scheme. This identification gives certainty to the scheme, as members of both the companies get a clear idea about what is going to be transferred?
2. Changes in the name/status of the company after Appointed Date:
There could be some changes in name, address or status of the company after the appointed date. Normally such changes do not affect the sanction of the scheme before High Court unless they adversely affect the rights & interests or obligations of the company and/or its members and creditors.
3. Accounting Treatment:
Normally the Transferee Company should, upon the Scheme coming into effect on effective date record the assets and liabilities of the Transferor Company vested in it pursuant to the Scheme, at the fair values thereof at the close of business of the day immediately preceding the Appointed Date.
4. Increase in share capital & Appointed Date:
The shares are allotted only after the scheme is sanctioned by the court and not before. Further, the increase of authorised share capital is always upon sanctioning of the scheme. Hence any objection to the scheme on the ground that on appointed date the share capital of the Transferee Company was not sufficient to give effect to the scheme cannot be sustained.