In general, amalgamation is the process of combining or uniting multiple entities into one form. Amalgamation is the act of merging many things into one. In business, it often refers to the mergers and acquisitions of many smaller companies into much larger ones.
In generic sense the term Amalgamation denotes the blending of two or more things into one single unit. The term is generally used to refer to the merger or acquisition (M&A) of two or more corporations into one large corporation. Mergers and acquisitions (M&As) is a phrase used to describe the buying and selling of corporations. In an acquisition one party buys another by acquiring all of its assets. The acquired entity ceases to exist as a corporate body, but the buyer sometimes retains the name of the acquired company, and may use it as its own name. In a merger a new entity is created from the assets of two companies and new stock is issued. Mergers are more common when the parties have similar size and power. A merger suggests mutuality. M&A activity involves both privately held and publicly traded companies. For the merging of schools or regiments the term amalgamation is used.
Types of amalgamation
There are three types of amalgamation. They follows-
- Vertical short-form amalgamation- it refers to when a holding cooperative amalgamates with one or more of its wholly owned subsidiary cooperatives.
- Horizontal short-form amalgamation- It refers to when two or more wholly owned subsidiary cooperatives amalgamate and continue as one cooperative.
- Long-form amalgamation- It refers to when members and, if any, investment shareholders of each amalgamating cooperative approve an amalgamation agreement before filing articles of amalgamation.
Amalgamations of bodies corporate
Now a day’s an increasing number of bodies corporate which are considering amalgamating with an adjacent body corporate which was part of the same development.
The interest in amalgamations is derived from a wish to reduce:
- Administration expenses.
- the rules and regulations governing the use of one body corporate assets by another Body Corporate; and
- The amount of time owners needs to spend on committees.
In order to amalgamate the bodies corporate need to agree on a range of things, including:
- The by-laws governing the new entity;
- The entitlements of all the owners; and
- The treatment of the administration and sinking funds.
Any easements or other similar style agreements also need to be considered.
The management rights agreements for each scheme (if any) continue as they were after any amalgamation. Usually we suggest that the consolidation of any management rights agreements occur after the amalgamation has taken place and after consideration by the new consolidated committee.
The bodies corporate each need to pass a resolution without dissent. Unfortunately, a layered scheme, which involves a principal body corporate, cannot ever be entirely amalgamated. Only subsidiary bodies corporate can be amalgamated.
Sometimes one or two owners will have their own agendas and will vote against the amalgamation. In order to proceed with the amalgamation an application needs to be made to the District Court and it will permit the amalgamation to occur if the dissent was unreasonable.
Advantages and disadvantages of amalgamation-
• Increased capacity for local government to better plan, manage and deliver services to their communities with a focus on social, environmental and economic sustainability;
• Increased capacity for local government to have adequate financial and asset management plans in place.
• Enhanced efficiency in the processing of planning, building and other license applications made by business and the community.
• Greater ability to attract and retain staff including the provision of further career development opportunities.
• Greater competition for positions on council and, in conjunction with other reforms, potential for enhanced governance capacity.
• Larger local governments with greater capacity to partner with State and Federal Government, and the private sector, to further improve services to communities.
• Potential loss of local identity: if amalgamation occurs communities of interest may be significantly different
• Loss of representation: fewer councilors suggest that it could be more difficult for community members to know or obtain access to elected members.
• Time and resource consuming, if amalgamation occurs, substantial resources would be required to implement.
• Time to achieve cost savings-: experiences in other states indicate that cost savings through perceived economies of scale are not realized for a number of years, if at all (to date no empirical evidence to support savings through amalgamations in other states.)
• Significant cost increase: the cost of reform when amalgamations occur can be significant and would include locating suitable sites and accommodating a larger workforce in new or upgraded central facilities
• Rationalization of major systems such as information technology systems, town planning schemes, human resource management practices, staff redundancies for example.
Difference between amalgamation and mergers-
A merger occurs when two or more locals combine and retain the identity of one of the merging locals. For example, where Local “A” merges with Local “B,” and the combined locals continue to function as Local B. An amalgamation occurs when two or more locals combine and form an entirely new local without retaining the identity of any of the combining locals. For example, Local A and Local B mutually agree to amalgamate, and the two locals combine and operate as a newly-chartered local (e.g., Local C).
Mergers & Amalgamations under the Companies Act, 1956
The terms merger and amalgamation have not been defined in the Companies Act, 1956 (hereinafter referred to as the Act) though this voluminous piece of legislation contains 69 definitions in Section 2. The concept paper recently issued by the Ministry of Company Affairs, the fate of which is still unknown, contained 100 such definitions but still stopped short of defining merger or amalgamation. The terms merger and amalgamation are synonyms and the term ‘amalgamation’, as per Concise Oxford Dictionary, Tenth Edition, means, ‘to combine or unite to form one organization or structure’.
The provisions relating to merger and amalgamation are contained in sections 391 to 396A in Chapter V of Part VI of the Act. Any proposal of amalgamation or merger begins with the process of due diligence, as the proposal for merger without due diligence is like entering a tunnel with darkness growing with each step. The due diligence process makes the journey see the light at the end of the tunnel – the light of wisdom to amalgamate or not.
The Act and the relevant rules pertaining to amalgamation are to be followed scrupulously. The provisions of the Act also deal with compromise or arrangement within or without amalgamation or merger. Presently, the High Court enjoys powers of sanctioning amalgamation matters under section 394 of the Act though it is a matter of time when this power will be exercised by National Company Law Tribunal, a forum where Chartered Accountants shall be authorized to appear. Not losing sight of this opportunity coming way of the Chartered Accountants, the seminar on this very topic, assumes greater significance and it is imperative that professionals like Chartered Accountants should keep themselves informed of the provisions relating to merger and amalgamations. The role of Chartered Accountants, in any amalgamation case, cannot be undermined as without their uncanny insight within the financial maze, no due diligence, valuation, share exchange ratio etc. can be accomplished.
An attempt has been made in this paper to present the provisions of the Companies Act, 1956 relating to mergers and amalgamations in form of questions and answers for ease of understanding, insight and awareness.
Why amalgamation occurs?
The company wished to avoid being wound up and negotiated a scheme in which the existing shareholdings in the company would be transferred to a new company which would take over the company’s undertaking and assets as well as its debts. This was to be effected by a scheme for reconstruction which would result in the old company’s shareholders holding four per cent of the shares in the new company.
Notwithstanding the heritage of schemes of arrangement which can be traced back to the United Kingdom in the 1860s, and the common origins of schemes in Australia and Singapore and an established body of legal principles, there is a notable degree of inconsistency in the line of judicial authorities on the nature of schemes of arrangements.
In particular, there is some controversy as to whether a scheme of arrangement derives its efficacy from an order of court or from the statute. Australian courts favor the former view. English courts, in contrast, take the position that a scheme of arrangement which has been approved by the requisite majority of the company’s creditors derives its efficacy from statute and therefore operates as a statutory contract.
An arrangement embraces such diverse schemes as conversion of debt into equity, subordination of secured or unsecured debt, conversion of secured claims into unsecured claims and vice versa, increase or reduction of share capital and other forms of reconstruction and amalgamation.
According to Halsbury’s Laws of England- 
Mergers, Amalgamation and Demergers of Companies under the Companies Act 1956 are governed by sections 391 to 396 Companies Act 1956.
There is lot of literature that has been written regarding the subject that why a company should go for merger or an amalgamations act. Alternatively the question is also that, what is the significance from a micro-economic perspective of mergers and amalgamations. According to researchers there are main advantages and disadvantages for a consult to indulge into merger and amalgamation activity that further includes the synergy in operating economies, taxation and other advantages. At the same time there are several disadvantages also like the implication of stamp duty which is applicable on transfer of assets from one owner to another. In some states the rate of duty is significant and hence may to some extent neutralize the cost advantages of savings in tax.
 “Neither ‘reconstruction nor amalgamation’ has a precise legal meaning. Where an undertaking is being carried on by a company and is in substance transferred, not to an outsider, but to another company consisting substantially of the same shareholders with a view to its being continued by the transferee company, there is a reconstruction. It is none the less a reconstruction because all the assets do not pass to the new company, or all the shareholders of the transferor company are not shareholders in the transferee company, or the liabilities of the transferor company are not taken over by the transferee company. ‘Amalgamation’ is a blending of two or more existing undertakings into one undertaking, the shareholders of each blending company becoming substantially the shareholders in the company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new company or by the transfer of one or more undertakings to existing companies.”
 It requires companies to make application to the court under section 391, which empowers the court to sanction the compromise or arrangement proposed by the companies. Section 392 further empowers the High Court to enforce a compromise or arrangement ordered by the court under section 391 of the Companies Act. Section 393 provides supporting provisions for compliance with the provisions or directions given by the court. Sections 395, 396 and 396A are supplementary provisions relating to amalgamation. Section 395 deals with the power to amalgamate without going through the procedure of the court.
Amendment in the Companies Act, 1956 in year 2002 gave powers to National Company Law Tribunal to review and to allow any compromise or arrangement, which is proposed between a company and its creditors or any class of them or between a company and its members or any class of them. However, because of non formation of National Company Law Tribunal, these powers still lie with High Courts and the parties concerned can make applications to high courts.