Where the amalgamating companies are already in the same hands, most of the protections in sections 233 and 234 serve no purpose. Section 235 of the Companies Act 1997 dispenses with them.
Section 235(1) — a company with its wholly owned subsidiaries
A company and one or more other companies that is or are directly or indirectly wholly owned by it may amalgamate and continue as one company — being the company first referred to — without complying with sections 233 and 234, where —
(a) the amalgamation is approved by a resolution of the board of each amalgamating company; and
(b) each resolution provides that —
(i) the shares of each amalgamating company other than the amalgamated company will be cancelled without payment or other consideration; and
(ii) the constitution of the amalgamated company, if it has one, will be the same as the constitution of the company first referred to, if it has one; and
(iii) the board is satisfied on reasonable grounds that the amalgamated company will, immediately after the amalgamation becomes effective, satisfy the solvency test; and
(iv) the person or persons named in the resolution will be the Director or Directors of the amalgamated company.
Under subsection (1) the amalgamated company is necessarily the company first referred to — the parent. The subsidiaries disappear into it, their shares cancelled for nothing, and the parent’s constitution governs.
“Directly or indirectly wholly owned” allows a chain: a parent may absorb a sub-subsidiary as well as a subsidiary, provided ownership is complete at every level. Whether a company is wholly owned is tested by the section 5 to 7 definitions.
Section 235(2) — sister companies
Two or more companies, each of which is directly or indirectly wholly owned by the same company, may amalgamate and continue as one company without complying with sections 233 or 234, where —
(a) the amalgamation is approved by a resolution of the board of each; and
(b) each resolution provides that —
(i) the shares of all but one of the amalgamating companies will be cancelled without payment or other consideration; and
(ii) the constitution of the amalgamated company, if it has one, will be the same as that of the amalgamating company whose shares are not cancelled; and
(iii) the board is satisfied on reasonable grounds as to solvency immediately after the amalgamation becomes effective.
| s 235(1) — parent and subsidiaries | s 235(2) — sister companies | |
|---|---|---|
| Who amalgamates | A company and its directly or indirectly wholly owned subsidiaries | Two or more companies wholly owned by the same company |
| Which survives | The parent — “the company first referred to” | The one whose shares are not cancelled |
| Constitution | The parent’s | That of the surviving company |
| Directors named in the resolution | Yes — s 235(1)(b)(iv) | Not required by subsection (2) |
| Solvency certificate | Yes — s 235(5) | |
| Notice to secured creditors | Yes — s 235(3), one month | |
| Shareholder approval | No — sections 233 and 234 do not apply | |
Section 235(3) — secured creditors must still be told
The board of each amalgamating company shall, not less than one month before the amalgamation is proposed to take effect, give written notice of the proposed amalgamation to every secured creditor.
Shareholders do not need protecting — there is only one ultimate owner, and it controls every board. Creditors are in a different position: under section 238 their debtor changes, because the amalgamated company succeeds to all the property, rights, liabilities and obligations of the amalgamating companies.
So section 235(3) preserves the one month’s notice to secured creditors. Note what is not required: the public notice and the availability of the proposal to unsecured creditors under section 234(4)(b) do not apply to a short form amalgamation.
Sections 235(4) to (6) — the deemed proposal and the certificate
(4) The resolutions approving the amalgamation, taken together, shall be deemed to constitute an amalgamation proposal that has been approved.
(5) The directors who vote in favour shall forthwith sign a certificate stating that, in their opinion, the conditions in subsection (1) or (2) are satisfied, and the grounds for that opinion.
(6) A director who fails to comply with subsection (5) commits an offence, penalty under section 413(1).
Subsection (4) is what allows the registration machinery to work: section 236 requires an amalgamation proposal to be lodged, and the deemed proposal supplies it.
Section 4(3) applies to short form amalgamations as it does to long form ones: the directors of each amalgamating company must have regard to financial statements complying with section 179 prepared as if the amalgamation had become effective, and to everything else they know or ought to know.
That is the real work in a short form amalgamation. Merging a loss-making subsidiary into a profitable parent may be commercially sensible, but the board must be able to certify that the combined entity satisfies the solvency test — and under section 152(5) a certificate signed without reasonable grounds is unfairly prejudicial conduct.
When a short form amalgamation is the right tool
- Group simplification. Collapsing dormant or duplicative subsidiaries into the parent, without transferring assets individually or paying stamp duty on transfers.
- Post-acquisition tidying. After a company has acquired all the shares in a target, merging the target into itself.
- Consolidating sister companies that carry on related businesses under a single ultimate owner.
- Ownership must be complete. A single minority share defeats section 235 and forces the full section 233 and 234 process, with its shareholder notice, special resolutions and buy-out rights.
- Cross-holdings are cancelled for nothing — there is no payment to the disappearing companies’ shareholders.
- Existing charges continue. Section 238 carries them across, and section 239 deals with the effect on registers.
- Contracts may contain change of control or assignment clauses that an amalgamation triggers, notwithstanding the statutory succession.
- Approving a short form amalgamation is a Schedule 3 power that the board cannot delegate.
Sources
- Companies Act 1997 — ss 4, 5–7, 111, 152, 179, 232–240, 413; Schedule 3
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.