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In the case of merger and division, two dates are crucial, the “Designation date” and, secondly, the “Effective date”. Business executives spend a lot of time planning the exact time of those dates. The “Designated Data” is normally organized to guarantee the interests and objects of the respective companies. And the “Effective Date” finalized by the High Court depends on the submission of a final order of the High Court before the Registrar of Companies.

Importance of the “Designated Date” and the “Effective Date”:

Any commitment or agreement scheme must identify a date in the scheme as “Designated Date”. This “designated date” is crucial to arrive at the values ​​of the assets and liabilities that appear in the accounting books, both for the purpose of the transfer to the transferring company and for arriving at the value of the shares for the transferor and the transfer company for information. Exchange report Generally, the first day of a month or the first day of a financial year is identified as a “designated date”, although the Court has the power to decide any date as a “transfer date”.

The “Date of entry into force”, on the other hand, is the date on which the transferee company submits the order of the Superior Court which sanctions the regime before the Registrar of companies for registration and when the order presented the merger or the regulation enters into force or entered into force on the “Designated Date”. The effective date is later and the company has no control over it.

Issues relating to the “Designation date” and the “Effective date” and its effects on various aspects of the restructuring:

1. Identification of the assets and liabilities of the transferring company:
According to the requirements of sections 391 to 394 of the Companies Act of 1956, the transferring company must identify and quantify the assets and liabilities that it intends to transfer to the transferee company in the event of a merger or demerger. This identification and quantification of assets and liabilities must be made on the designated date.

The details of these assets and liabilities can be attached as a structure of the scheme. This identification gives certainty to the system, as members of both companies have a clear idea of ​​what will be transferred.

2. Changes in the company name / status after the Designation Date:
There may be changes in the company name, address or status after the designated date. Normally, these changes do not affect the sanction of the regime before the High Court, unless they adversely affect the rights and interests or obligations of the company and / or its members and creditors.

3. Accounting treatment:
Normally, the assignee Company must, once the Plan has entered into force on the effective date, record the assets and liabilities of the assignor Company conferred pursuant to the Plan, at their fair value at the close of operations on the day immediately preceding the Designated Date

4. Share capital increase and appointment date:
Actions are awarded only after the system has been sanctioned by the court and not before. In addition, the authorized share capital increase always occurs after approval of the scheme. Therefore, any objection to the scheme based on the fact that on the designated date the share capital of the transferring company was not sufficient to implement the scheme cannot be incurred.

5. Nature of business:
From the designated date until the effective date, the transferring company must act as trustee of an assignee company.

The Transfer Companies must carry out all their respective activities and activities and must be considered to be owned or owned and must own and remain in possession of all the Activities mentioned by and on behalf of and in trust of the Transfer Company. Escorts in Karachi

All benefits or income accrued or derived from the Transfer Companies or expenses or losses arising or incurred by the Transfer Companies must be treated and accrued for all purposes as gains and income or expenses or losses from the Transfer Company, according to be the case

Transfer companies must carry out their respective commercial activities with reasonable diligence, commercial prudence and must not dispose of, collect, mortgage, encumber or process such goods or any part of them, except in the normal course of business. compliance with any existing obligation assumed by the Transfer Companies prior to the Designated Date, except with the prior written consent of the Transfer Company.

Transfer companies must not undertake new activities without the prior written consent of the transfer company.

Transfer companies cannot, without the prior written consent of the transfer company, make important political decisions regarding the administration of the company and the affairs of the company and must not change its current asset structure.

6. Transfer of employees:
Normally, in any merger / merger, all employees of the transferring Company in service on the Effective Date could become employees of the assignee Company on that date without interruption or interruption of the service and in terms and conditions no less favorable than those that exist with reference to the transferring company on the effective date. The main objective of the transfer of a company under the scheme is to see the continuity of the activity in that company under the control of the transfer company. Therefore, the transfer company must make arrangements to keep the chart and number in service on the effective date that are willing to be transferred to the transfer company.

7. Declaration of dividends: transferee company
The dividend declared by the assignee company, after the appointment date, is also paid to the members of the transferor company. And this does not violate the provisions of section 205 of the Companies Act of 1956. Although it is true that unless the court sanctions the system, it will have no effect, but once the court accepts its sanction, it will enter into force. from the designated date. Therefore, the shareholders of the transferring company become shareholders of the transfer company from the “designated date”. Therefore, they are entitled to any dividend declared by the transfer Company after the “Designated Date”.

8. Dividends, profits and shares of bonds / rights: transferor company
The transfer company cannot declare, without the prior written consent of the transfer company, any temporary or definitive dividend for the financial year ending on the designated date and subsequent years.

The transferring Company must not issue or assign Bonus Shares or Bonus Shares correct for its authorized or not issued Share Capital on the Designated Date or thereafter.

Normally, the transfer Company’s earnings on the designated date must belong and be the transfer Company’s earnings and will be available to the Transfer Company in the manner it deems appropriate.

The Transfer Company cannot, except with the written consent of the Transfer Company’s Board of Directors, modify its capital structure provided through a preferential allocation of shares or other, once the Plan has been approved by the Board of Directors of the transfer company.

9. Tax liability:
The basic principle underlying the decision on the terms of direct or indirect tax liability can be explained as follows,

For daily activities, liability changes only from the date of entry into force and for any other activity, such as annual assessment, etc., the deadline will be designated.

10. Indirect tax implications:
Indirect taxes generally apply to activities such as services, production / production of goods, sale of goods, etc. After the “designated date”; Although these assets refer to the “transferred company”, their final effect on the financial position will normally be indicated in the transfer company’s accounting books only after the effective date. Therefore, for an indirect tax termination date it is “Effective Date”. Until the effective date, the Transfer Company is responsible for paying indirect taxes, if applicable.