What provision does the Companies Act make for company amalgamations?
The Companies Act allows two or more companies to be amalgamated. Where this is done these companies become fused or consolidated as a single corporate entity. This fused entity is entitled to all of the properties, rights, benefits and assets of all of the former companies. It is also subject to all of the liabilities and obligations of the former companies.
These provisions are among the most practical and useful features of the Companies Act. Key features of amalgamation are that: it avoids the necessity and expense of transferring assets to a single entity; and pre-existing contracts remain in place and do not need to be assigned. Amalgamation is therefore a very desirable mechanism to effect the reconstruction of conglomerates or to create a union of companies for operational reasons. In some situations it can also facilitate effective tax planning.
What steps are needed to effect an amalgamation?
The first step in carrying out an amalgamation is to draw up an agreement incorporating the terms and means of effecting the amalgamation including the form of the proposed by-laws. It is desirable that the by-laws of one of the amalgamation companies be adopted as the by-laws of the amalgamated entity. After the amalgamation agreement has been drawn up, it must be approved by the Boards of Directors of the amalgamating companies and must be submitted to the shareholders of each of the amalgamating companies for approval. If the shareholders approve of the amalgamation, then Articles of Amalgamation in the prescribed form must be filed with the Registry accompanied by a declaration of solvency; particulars of directors and the registered office.
A holding company which seeks to amalgamate with one or more of its wholly-owned subsidiaries is not required to prepare and submit an amalgamation agreement for the approval of shareholders if:
· The directors of each company approve the amalgamation; and
· The resolutions of each Board provide that:
§ The shares of each amalgamating subsidiary will be cancelled without repayment of capital;
§ The articles of amalgamation will be the same as the articles of incorporation of the holding company; and
§ No shares or debentures will be issued by the amalgamated company in connection with the amalgamation.
A fairly similar short-form mechanism is available to enable two or more wholly-owned subsidiaries of a common parent body to amalgamate. A director or officer of each amalgamating company is required to make a statutory declaration establishing to the satisfaction of the Registrar that:
· Each amalgamating company is and the amalgamated company will be able to pay its liabilities as they become due;
· The realisable value of the amalgamated company's assets will not be less than the aggregate of its liabilities and stated capital of all classes; and
· Either that no creditor will be prejudiced by the amalgamation or that adequate notice has been given to all known creditors and no creditor objects except on grounds that are frivolous or vexatious.
Can a minority shareholder object to amalgamation?
If a company resolves to effect an amalgamation, a shareholder is entitled to dissent. He does so by sending a written dissent to the company at or prior to the meeting convened to effect the amalgamation. A dissenting shareholder is entitled to be paid the fair value of the shares held by him as of the day prior to the resolution approving the amalgamation without taking into account any change in value attributable to the anticipated adoption of the amalgamation resolution.
The company is required to make an offer to pay for the shares of a dissenting shareholder not later than seven days after the resolution adopting the amalgamation at a price considered by the directors to be the fair value of the shares. If this offer is not accepted, either party may apply to the court for an order to fix the fair value of the shares. A dissenting shareholder who makes a demand for payment of the fair value of his shares ceases to have any rights as a shareholder other than the right to be paid such fair value of his shares. However, this does not apply if he withdraws his notice of dissent or the directors terminate the amalgamation agreement.