Sections 236 to 239 of the Companies Act 1997 turn an approved amalgamation proposal into a completed merger.
Section 236 — what must be lodged
(a) the approved amalgamation proposal;
(b) any certificates required under section 234(2) or 235(5);
(c) a certificate signed by the board of each amalgamating company stating that the amalgamation has been approved in accordance with this Act;
(d) the constitution of the company, if it has one;
(e) where the amalgamated company is new, or the proposal provides for a change of name, the notice reserving the name;
(f) a certificate signed by the board, or proposed board, of the amalgamated company stating that, where the proportion of creditors’ claims to the value of assets in the amalgamated company is greater than that proportion in an amalgamating company, no creditor will be prejudiced by that fact;
(g) and the company shall keep at its registered office a signed consent by each person named as a director or secretary of the amalgamated company, producible to the Registrar on written request.
Amalgamating a heavily indebted company into a solvent one dilutes the position of the solvent company’s creditors: the same assets now stand behind more debt. Paragraph (f) requires the board of the amalgamated company to certify that, where the gearing worsens, no creditor will be prejudiced.
Note that this is in addition to the solvency certificates under sections 234(2) or 235(5). Solvency looks at whether the merged entity can pay its debts; paragraph (f) looks at whether any individual creditor is worse off. And under section 152(5), signing any certificate required by the Act without reasonable grounds is unfairly prejudicial conduct.
Section 237 — the certificate of amalgamation
(1) After receipt of the section 236 documents, the Registrar shall — (a) where the amalgamated company is one of the amalgamating companies, issue a certificate of amalgamation; or (b) where it is a new company, enter particulars on the register and issue a certificate of amalgamation together with a certificate of incorporation.
(2) Where the proposal specifies a date on which the amalgamation is intended to become effective, and that date is the same as or later than the date the Registrar receives the documents, the certificates shall be expressed to have effect on the date specified in the proposal.
So a company may choose its own effective date — a month end, a financial year end — provided the documents are lodged on or before it. Lodging late means the amalgamation takes effect on the certificate’s own date instead.
Section 238 — the effect
(a) the amalgamation is effective; and
(b) the amalgamated company has the name specified in the proposal, where it is the same as one of the amalgamating companies; and
(c) the Registrar shall remove the amalgamating companies, other than the amalgamated company, from the register; and
(d) the amalgamated company succeeds to all the property, rights, powers, and privileges of each amalgamating company; and
(e) it succeeds to all the liabilities and obligations of each; and
(f) proceedings pending by or against an amalgamating company may be continued by or against the amalgamated company; and
(g) a conviction, ruling, order, or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and
(h) the provisions of the proposal for the conversion of shares or rights of shareholders have effect according to their tenor.
This is what makes an amalgamation different from a business sale. Nothing is transferred — the amalgamated company simply succeeds. There are no assignments of contracts, no conveyances of land, no novations, and no separate transfer of charges, licences or intellectual property.
The corollary in paragraphs (e) to (g) is equally complete. Every liability comes across — including contingent liabilities, guarantees, tax, employment obligations and litigation. Amalgamation is never a way to leave debts behind, and a conviction as well as a judgment is enforceable against the survivor.
Section 239 — the effect on other registers
(1) No person charged with keeping any books or registers is obliged, solely by reason of the amalgamation, to change the name of an amalgamating company to that of the amalgamated company in them.
(2) Presentation of an instrument by the amalgamated company that is (a) executed or purporting to be executed by it, (b) relating to property held immediately before the amalgamation by an amalgamating company, and (c) stating that the property has become its property by virtue of this Part, is — in the absence of evidence to the contrary — sufficient evidence that the property has become the property of the amalgamated company.
(3) Where a security, or rights or interests in property, become the amalgamated company’s by virtue of this Part, the person concerned shall, on presentation of a certificate signed on behalf of the board, notwithstanding any other law or the provisions of any instrument, register the amalgamated company as the holder.
Except as provided in this section, nothing in this Part derogates from the provisions of the Land Registration Act (Chapter 191).
So while section 238(d) vests land in the amalgamated company as a matter of company law, dealings with the title remain governed by the land legislation and its registration requirements. An amalgamated company should attend to its titles rather than assume the register will follow automatically.
The words “notwithstanding any other law or the provisions of any instrument” override transfer restrictions. A company registrar who would otherwise refuse to register a transfer — because of a pre-emption clause or a directors’ discretion under section 65(4) — shall register the amalgamated company as holder on presentation of the board certificate.
Section 240 — the Court may stop or modify an amalgamation
Where the Court is satisfied that giving effect to an amalgamation proposal would unfairly prejudice a shareholder or creditor of an amalgamating company, or a person to whom an amalgamating company is under an obligation, it may — on the application, made at any time before the date on which the amalgamation becomes effective, of that person or the Registrar — make any order it thinks fit, including that —
(a) effect shall not be given to the proposal;
(b) the proposal be modified in such manner as may be specified;
(c) the company or its board reconsider the proposal or any part of it.
Section 240 is available only before the amalgamation becomes effective. Once the certificate takes effect, section 238 has operated: the companies are merged, the register is altered, and there is nothing to unwind.
That is why section 234(3) and (4) require one month’s notice to shareholders and secured creditors, and public notice telling anyone to whom a company is under an obligation that the proposal is available for inspection. The month is the window in which a section 240 application must be brought.
Note the standing: a creditor and any person to whom the company is under an obligation may apply, as may the Registrar — wider than most remedies in the Act. Orders may be made on such conditions as the Court thinks fit (s 240(2)).
A shareholder who simply disagrees with the amalgamation has a different remedy: the section 91 buy-out right, requiring the company to purchase their shares at a fair and reasonable price.
Sources
- Companies Act 1997 — ss 65, 91–96, 152, 232–240, 249–253
- Land Registration Act (Chapter 191)
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.