Notes On Re-Construction And Amalgamation Of Company:

Duties of the Managing Director On Re-Construction of the Company:

        Re-Construction of the Company becomes necessary for the purpose of reorganising the capital structure of the company for the sustenance, growth and development of the business. The term 'Reconstruction' refers to the process by which the undertaking of an existing company gets transferred to another company incorporated for the same purpose. Thus reconstruction refers to the formation of a new company taking over the assets of the old one with the idea that the same business shall be carried on by the same person.

        Reconstructing the financial structure of the company with or without its dissolution. It may include reconstruction of claims of both the share holders and the creditors of the company.

Objectives Of Re-construction:
  1. To simplify the capital structure of the company
  2. To reduce the amount of fixed charges
  3. To eliminate the past losses
  4. To adjust the arrears of cumulative dividends
  5. To raise of Company's working capital
Types of Re-construction:

        Re-construction may be of two types:

1. External Reconstruction:

        In this case, the existing company is dissolved and a new company is formed to take over the business of the existing company the financial condition of which is in bad state.

2. Internal Reconstruction:

        In this case, the capital structure of the company is reorganised to provide a new life to the company.

Amalgamation of Companies:

        The Companies Act 1956 has not defined the term amalgamation. But section 394 of the Companies Act 1956, states that amalgamation refers to the merger of one company with another company to facilitate reconstruction and merger. Amalgamation takes place when two or more companies join together to form a third entity or when one is absorbed or blended with another. The new company that comes into force as a result of amalgamation assumes all the properties, rights, powers and is subject to all duties and responsibilities of both the contingent companies.

        Reconstruction of companies may be carried on in any of the following ways:

  1. By sale of undertaking under the powers given by the Memorandum of Association
  2. By scheme of arrangement under section 391 of the Companies Act.
  3. By acquiring majority of shares in another company under section 395
  4. By a compulsory amalgamation of companies in public interest by an order of the central government under section 396
  5. By voluntary winding up by members.
Necessity of Reconstruction:

        Reconstruction of a company may be done for any of the following reasons:

  1. To extend the scope of operation of the company
  2. For the purpose of getting recognised in the market
  3. To reorganise the capital structure according to the Act.