Part XIV of the Companies Act 1997 provides a statutory merger that does not require assets to be transferred one by one.
Section 232 — the concept
Two or more companies may amalgamate, and continue as one company, which may be one of the amalgamating companies, or may be a new company.
That is the whole of it. The companies do not sell assets to each other; they continue as one. What happens to property, rights, obligations and proceedings is dealt with by section 238.
Section 233 — the amalgamation proposal
(a) the name of the amalgamated company, where it is the same as one of the amalgamating companies; and
(b) its registered office; and
(c) the full names and addresses of the directors and secretary (if any); and
(d) its address for service; and
(e) the share structure — the number of shares and the rights, privileges, limitations and conditions attached to each, where different from section 37; and
(f) the manner in which the shares of each amalgamating company are to be converted into shares of the amalgamated company; and
(g) where shares are not to be converted, the consideration the holders are to receive instead; and
(h) any payment to a shareholder, director or secretary other than under paragraph (g); and
(i) details of any arrangement necessary to complete the amalgamation and to provide for the subsequent management and operation of the amalgamated company.
Under section 233(2) the proposal shall include the proposed constitution of the amalgamated company, if any. Under section 233(3) it may specify the date on which the amalgamation is intended to become effective.
Where shares of one amalgamating company are held by or on behalf of another, the proposal shall provide for the cancellation of those shares without payment or other consideration, and shall not provide for their conversion into shares of the amalgamated company.
Otherwise the amalgamated company would end up holding shares in itself. The rule matches section 64, which forbids a subsidiary holding shares in its holding company.
Sections 234(1) and (2) — the board resolutions and certificate
(a) in its opinion the amalgamation is in the best interests of the company; and
(b) it is satisfied on reasonable grounds that the amalgamated company will, immediately after the amalgamation becomes effective, satisfy the solvency test.
The directors who vote in favour shall forthwith sign a certificate stating that, in their opinion, those conditions are satisfied, and the grounds for that opinion.
Section 4(3) supplies a special version of the test for amalgamations: 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 all other circumstances they know or ought to know would or may affect the position — with the ability to rely on reasonable valuations and estimates.
A director who fails to sign the certificate commits an offence, penalty under section 413(1) (s 234(6)). And under section 152(5), signing a certificate without reasonable grounds for the opinion is unfairly prejudicial conduct.
Section 234(3) — one month’s notice to shareholders
(a) a copy of the amalgamation proposal; and
(b) copies of the certificates given by the directors of each board; and
(c) a summary of the principal provisions of the constitution of the amalgamated company, where it has one; and
(d) a statement setting out the rights of shareholders under section 91; and
(e) a statement of any material interests of the directors in the proposal, whether in that capacity or otherwise; and
(f) such further information and explanation as may be necessary to enable a reasonable shareholder to understand the nature and implications of the proposed amalgamation.
Shareholders must be told about their buy-out rights. Under section 91, a shareholder who casts all their votes against an amalgamation resolution — or who does not sign a written resolution — may require the company to purchase their shares at a fair and reasonable price.
A board should model that cost before proceeding: under section 92(2) it then has four options within one month, including applying to the Court or abandoning the amalgamation.
Section 234(4) — secured creditors and public notice
(a) send a copy of the amalgamation proposal to every secured creditor; and
(b) give public notice of the proposed amalgamation, stating that —
(i) copies of the proposal are available for inspection by any shareholder or creditor of an amalgamating company, or any person to whom an amalgamating company is under an obligation, at the registered offices during normal business hours; and
(ii) such a person is entitled to be supplied free of charge with a copy on request.
Under section 238 the amalgamated company succeeds to all the property, rights, powers, privileges, liabilities and obligations of the amalgamating companies. A creditor of one company ends up a creditor of the merged entity — with a different balance sheet behind its debt.
Note the width of paragraph (b)(i): any person to whom an amalgamating company is under an obligation, not merely creditors. “Public notice” under section 3 means publication in at least one issue of the National Gazette and a newspaper circulating throughout the country — and where a company has changed its name in the preceding 12 months, section 26(4) requires the former name to be disclosed.
Section 234(5) — approval by shareholders
(a) by the shareholders of each amalgamating company, in accordance with section 88 — that is, by special resolution; and
(b) where a provision would, if proposed as a constitutional amendment, require the approval of an interest group, by a special resolution of that interest group.
So an amalgamation affecting the rights attached to a class needs two special resolutions in that company: one of the shareholders generally, and one of each affected interest group — each of which then carries its own section 99 buy-out right.
Where the companies are within a wholly owned group, section 235 allows a short form amalgamation by board resolution alone, without complying with sections 233 and 234. And where the transaction is complex or contested, Part XVI allows the Court to approve an amalgamation, arrangement or compromise on its own terms.
Note also that approving an amalgamation proposal is a Schedule 3 power the board cannot delegate.
Sources
- Companies Act 1997 — ss 3, 4, 26, 37, 64, 88, 91–96, 99, 111, 152, 179, 232–240, 249–253, 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.