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About Demerger

A de-merger is a corporate restructuring in which a business is broken into components, either to operate on their own, to be sold or to be liquidated. A de-merger (or "demerger") allows a large company, such as a conglomerate, to split off its various brands or business units to invite or prevent an acquisition, to raise capital by selling off components that are no longer part of the business's core product line, or to create separate legal entities to handle different operations.

Demerger is a form of corporate restructuring which in undertaken by companies in order to promote specialization. Companies have started practicing demerger because of the many benefits it offers. Demerger allows a company to expand its operations in a very systematic manner. It allows a specific division or unit to grow as a separate and a focused entity, thereby increasing its efficiency and effectiveness. It benefits the shareholders by providing them better opportunities to participate in the management, operations, decision making process and profits of the applicant company as well as the resulting company.


Preparation of Scheme of Arrangement

The scheme of arrangement is prepared after consulting the interested parties and stakeholders. Such arrangement is approved by the board of directors. Also, the share exchange ratio is determined while balancing the interest of all the parties.


The summons is issued under section 391 by a judge of the concerned High Court after an application is filed in Form 33 accompanied by an affidavit in support in Form 34. The scheme of such arrangement must also be annexed. Additional documents that are to be filed before the High Court are:

  • Memorandum and articles of association of the Company;
  • Latest Audited Balance Sheets ;
  • List of Shareholders and Creditors;
  • Extract of Board Resolution approving the Scheme, and
  • Draft notice of Meeting, Explanatory Statements and Proxy.


Obtaining court’s order for holding meeting of Members/Creditors

Court Examines

The court examines the fairness of the scheme submitted by the applicants and subsequently issues summons in Form 35 of the Court Rules. The court has to ensure that the scheme is capable of being implemented.

Notice of meeting of Members/Creditors

A notice in Form 36 is sent to the interested parties by the persons authorized by the courts at least twenty one days before the date of the meeting accompanied by the proposed scheme and proxy forms. Such notice shall also be advertised in Form 38 in such newspapers that are well circulated among the interested parties.

Holding meeting of Members/Creditors

A meeting shall be held according to the directions of the court and the result of such meeting shall be decided by separately counting votes in favor and against the motion. The chairperson of each meeting shall submit a report in Form 39 within the time prescribed by the court.

Petition to the Court for sanctioning the scheme of Demerger

A petition in Form 40 has to be submitted to the court for sanctioning the scheme of demerger. It has to be approved by three-fourths of members/creditors in order to file a petition to sanction the same.

Court's order on petition sanctioning the scheme of Demerger

After hearing the objections, the Court may pass an order approving the scheme of scheme of demerger in the same newspaper in which the notice of meeting was advertised.

Mode Of Demerger

Frequently Asked Questions

An Insight into Appointed Date and Effective Date in Merger and Demerger. Normally appointed date is before effective date. It is sometimes ideal to have both on the same date from commercial angle particularly in the case of demerger.

When companies must undo a merger. The FTC can decide that a merger must be undone, even years after its completion. The FTC can decide that a merger must be undone, even years after its completion

Demerger is the business strategy wherein company transfers one or more of its business undertakings to another company.

The demerger can also occur by transferring the relevant business to a new company or business to which then that company's shareholders are issued shares of. In contrast, divestment can also "undo" a merger or acquisition, but the assets are sold off rather than retained under a renamed corporate entity.

A demerger is a form of corporate restructuring in which the entity's business operations are segregated into one or more components. It is the converse of a merger or acquisition.

A demerger involves the restructuring of a corporate or fixed trust group by splitting its operations into two or more entities or groups must calculate the cost base and reduced cost base of your interests in the head entity and your new interests in the demerged entity immediately after the demerger.


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