The provisions for the division and merger of public limited companies are broadly similar to those applicable to private companies. Some further and differing provisions apply. The PLC rules apply if each of the companies involved, or at least one of them is a PLC.
A division may be a division by acquisition or by the formation of a new company. In the case of a division by acquisition, two or more successor companies of which one or more, but not all, may be a new company, acquire between them the assets and liabilities of the transferor company that is dissolved without going into liquidation. The acquisition must be by way of the exchange for the issue to the shareholders of the transferor company of shares in one or more of the successor companies, with or without cash payment with a view to the dissolution of the transferor company.
A division by the formation of new companies consists of the same arrangement as above, save that the successor companies are formed for the purpose of the acquisition of the assets and liabilities of the transferor company.
Where a company is being wound up, it may become a party to a division by acquisition or by the formation of new companies, subject to compliance with conditions, provided that the distribution of its assets has not begun prior to the common draft terms of the division being adopted.
A division may be undertaken only in accordance with the provisions in the legislation. Other techniques to achieve the same result, formerly employed, are no longer available. The division may not be put into effect, unless other applicable legislation, in particular, competition legislation, is complied with.
Terms of Division
The directors of the companies involved in the division must draw up common draft terms of division in writing. It is to include
- certain details and particulars regarding the company and the successor companies;
- the proposed share exchange ratio and any cash payments;
- the proposed terms relating to allotment of shares or other securities in the successor companies;
- the date from which the holding of shares or other securities in the successor companies will entitle the holders to participate in profits and any special conditions affecting that entitlement;
- the date from which the transactions of the transferor company are to be treated for accounting purposes as being those of any of the successor companies;
- the rights, if any, to be conferred by the successor companies on members of the transferor company enjoying special rights or on holders of securities other than shares representing the transferor company’s capital, and the measures proposed concerning them;
- any special advantages granted to any director of a company involved in the division, or to a person preparing the expert’s report;
- the precise description and allocation of the assets and liabilities of the company being acquired that are to be transferred to each of the successor companies;
- the allocation of shares in the successor companies to the shareholders of the transferor company and the criteria on which such allocation is based;
- the dates of the financial statements, if any, of every company involved in the division which was used for the purpose of preparing the common draft terms of division; and
- where the division involves the formation of one or more new companies, the common draft terms of division shall include or be accompanied by the constitution or draft constitution of each of the new company.
The common draft terms of division, as approved shall be signed, on the same date, on behalf of each of the companies involved in the division by 2 directors of each such company (or, in the case of each of one or more of them having a sole director, by the sole director); the common draft terms shall bear the date of such signing.
Requirements in relation to Terms
The common draft terms of division must not provide for any shares in any of the successor companies to be exchanged for shares in the transferor company held either by the successor companies themselves or their nominees on their behalf; or by the transferor company or its nominee on its behalf.
Where an asset of the transferor company is not allocated by the common draft terms of division and it is not possible to determine the manner in which it is to be allocated, the asset or the consideration for it shall be allocated to the successor companies in proportion to the share of the net assets allocated to each of those companies under the common draft terms of division.
If provision is not made by the common draft terms of division for the allocation of an asset acquired by, or otherwise becoming vested in the transferor company on or after the date of those draft terms then, subject to any provisions which the court may make in an order, the asset or the consideration therefor shall be allocated in the manner specified above.
Where a liability of the transferor company is not allocated by the common draft and it is not possible to determine the manner in which it is to be allocated, the liability shall become jointly and severally, the liabilities of the successor companies. This is also the position where provision is not made by the common draft terms for allocation of the liability.
The holder of securities, other than shares in the transferor companies to which special rights are attached, shall be given rights in the successor company at least equivalent to those possessed in the transferor company. This does not apply where the alteration of the rights in the successor company has been approved by a majority of the holder of the shares concerned at a meeting held for the purpose or by the holders of those shares individually or where the holders of those securities are entitled to by their terms to have the securities purchased by a successor company.
A directors’ explanatory report is required in relation to the draft terms of division. It is to be signed by two directors of each company involved in the division. It must give an explanation and particulars of
- the common draft terms of division;
- the legal and economic grounds for, the implications of the division with particular reference to the share exchange ratio, the organisation and management structures, recent and future commercial activities, and the financial interest of the holders of the shares and other securities in the companies;
- the methods used to arrive at the proposed share exchange ratio and the reasons for the use of the methods; and
- any special valuation difficulty that has arisen.
Where it is proposed that any successor company which is a PLC shall allot shares other than for cash, the explanatory note shall state whether a report on the consideration has been made and if so, whether it has been delivered to the CRO.
There is provision for dispensation with the requirement for the directors report, if all holders of shares entitled to vote at the general meeting consent, or where a requirement for the taking effect of a vote by holders of shares of any of the companies involved in the division is that a holder of securities of the company has consented thereto, that such consent exists; and all of the holders of securities of the company or companies in respect of which the requirement operated have agreed, that the requirement shall not apply.
An expert’s report is required in relation to the common draft terms of division. The report is made to the shareholders of the companies involved. The expert is to be appointed by the directors of the relevant company or companies. The appointment must be confirmed on foot of application to the court. There may be joint experts. The expert must be a person who is qualified to be a statutory auditor and must not be connected with the companies.
The requirement does not apply in relation to a company involved in a division by the formation of new companies where the shares in each of the acquiring companies are allocated to the shareholders of the transferor company in proportion to their rights in the capital of that company.
The expert’s report must be made available for a period of 30 days before the passing of the resolution by each of the companies. It shall
- state the method used to arrive at the proposed share exchange ratio;
- give an opinion as to whether the proposed ratio is fair and reasonable;
- give an opinion as to the adequacy of the methods used;
- indicate the values arrived at using each method;
- give an opinion as to the relative importance attributed to such methods in deriving the values; and
- specify any valuation difficulties that have arisen.
The experts may require officers of the company to give explanations and information in writing and may make such enquiries as they see fit, for the purpose of preparing the report. The company’s officers must cooperate. It is an offence to fail to cooperate or to give false or misleading information.
The requirement for an expert’s report may be dispensed with, where all shareholders of the companies, entitled to vote at the general meeting so agree and the holders of other types of securities, who are required by the agreement to consent, have so consented.
A division financial statement must be produced. It mist be produced in accordance with the format of the latest annual balance sheet. There are provisions regarding treatment of certain items including the valuation of assets, interim depreciation and provisions. Valuations shown in the last annual balance sheet, if any, shall, subject to exceptions, be altered only to reflect entries in the accounting records of the company.
The provisions relating to the statutory auditor’s report on the last statutory financial statements of the company concerned shall apply, with any necessary modifications, to the division financial statement required of the company.
The obligation does not apply in relation to a company involved in a division which makes public a half-yearly financial report covering the first 6 months of its financial year subject to conditions if that company makes that report available for inspection.
The provisions may be dispensed with in almost the same way as that applicable to the directors’ and expert’s report.
Each of the companies involved in the division must deliver to the CRO, a copy of the common draft terms of the division and cause it to be published in the CRO Gazette. The requirement must be fulfilled at least 30 days before the general meeting.Alternatively, the company may publish free on its website for at least two months commencing at least 30 days before the general meeting, the common draft terms of division. In this case, it shall publish in the CRO Gazette and in at least two daily newspapers papers circulating in the place where the registered office or principal place of business is situated, notice of such publication.
Each of the companies involved in the division must make available free of charge certain information at its registered office during business hours, for inspection by members; including
- the common draft terms of division,
- statutory financial statements for the preceding three years, audited where required; where any of the companies involved have traded for less than three years, the relevant requirements are adjusted;
- the report explaining the division set out above;
- an expert’s report if required; and
- each division financial statement unless dispensed with.
The above provisions must be complied for at least 30 days prior to the meeting to approve the division.
The above obligation does not apply in relation to a company involved in a division if it publishes free of charge on its website the documents specified for a continuous period of at least 2 months, commencing at least 30 days before the date of the general meeting which, is to consider the common draft terms of division and ending at least 30 days after that date. Copies of the documents must be available to download free of charge.
Where in the period concerned access to the company’s website is disrupted for a continuous period of at least 24 hours or for separate periods totalling not less than 72 hours, the period referred to above shall be extended for a period corresponding to the period or periods of disruption.
General meetings of the companies involved in the division are to be held to approve the scheme. Where the division is by the formation of new companies, the constitution of each of the new companies must be approved by special resolution of the transferor companies. The notice of the meeting must include a statement of every shareholder’s entitlement to obtain free of charge, on request, copies of the relevant scheme documents mentioned above.
The directors of the transferor company shall inform the shareholders of any material changes in the assets and liabilities since the date of the draft terms of division. The terms of division must be approved by a special resolution. A special resolution is not required of the successor company unless members who hold not less than five percent of paid-up capital require the convening of a general meeting to consider the common draft terms.
Approval by means of a special resolution of the common draft terms of division is not required in the case of a transferor company if
- the successor companies together hold all of the shares with the right to vote in general meeting;
- the companies involved in the division comply with the above prior publicity requirements at least 30 days before the meeting; and
- members are informed of any material change in the assets and liabilities since the date of the draft terms of division.
Where a shareholder has consented to the use by the company of electronic means for conveying information, the copies of the above documents may be provided, by electronic mail, to that shareholder by the company. The notice convening the general meeting shall contain a statement to that effect.
Where shares of any of the companies involved in the division are divided into different classes, the above requirement for approval by the shareholders applies to each class of shares whose rights are varied by the division.
Dissenters and Creditors
There are provisions protecting the rights of the minority. A shareholder who has voted against the division may within 15 days of the shareholders’ approval, request that his shares be purchased for cash. The company must purchase the shares at a price determined in accordance with the share exchange ratio set out in the common draft terms of divisions. The shares so purchased are to be treated as treasury shares.
As set out in the next page, an application must be made to the court for approval of the division. It must be made jointly by all of the companies involved in the division. It is to be accompanied by a statement of the size of the shareholding of any shareholders who have requested to be purchased out.
There are provisions for the protection of creditors and the allocation of liabilities. A creditor involved in the division or a creditor of any of the companies involved in the division, entitled to any debt or claim against the company who can credibly demonstrate that the proposed division will be likely to put the satisfaction of the debt or claim at risk and that no adequate safeguards have been obtained from the company, is entitled to object to the confirmation by the court of the division.
The court, if it deems it necessary to secure the adequate protection of the creditors, may determine a list of the creditors entitled to object and the nature and extent of their debts and claims. It may publish a notice fixing a day by which creditors who are not entered on the list, must claim to be so entered or are to be excluded from the right to object.
Where a creditor entered on the list whose debt or claim is not discharged or has not terminated, does not consent to the confirmation, the court may if it thinks fit, dispense with the consent of the creditor on either the company or successor company securing payment of the debt or claim or the appropriate amount fixed by the court after enquiry and adjudication as if the company was being wound up. The court having regard to any special circumstances may direct that this requirement shall not apply with regards to any class of creditor.
A court order is required to confirm the division. The court, on being satisfied that
- the provisions of the legislation have been complied with;
- proper provision has been made for dissenting creditor or creditors who object to the division;
- the rights of the holders of securities other than shares in the transferor are safeguarded as above;
- where applicable the provisions in relation to the variation of class rights have been complied with;
may make an order confirming the division with effect from the effective date appointed.
The effect of the court order is that
each asset and liability of the transferor company is to be transferred to the relevant successor company in accordance with the terms of the division;
- where no request has been made by shareholders to be purchased out, the remaining members of the transferor company become members of the successor companies as provided by the terms of divisions;
- the transferor company is dissolved;
- legal proceedings by and against the transferor company continue with the transferor or successor company as party as the court orders;
- the relevant successor company is obliged to make cash payments required by the terms of the division;
- contracts and engagements are transferred;
- obligations and liabilities are transferred;
- property and assets are transferred; there is provision for registration of the division with the Property Registration Authority or other appropriate register.
Generally, the court may make such order confirming the division on such terms as it considers necessary in order to secure that the division is fully and effectively carried out. For this purpose, the court may permit that which would otherwise constitute giving financial assistance or a reduction of share capital.
If the court makes an order confirming the division, a certified copy is to be sent to the Registrar. The Registrar is to cause it to be published in the CRO gazette within 14 days.
Liability for Misstatements I
There is provision for civil liability and criminal liability for directors and experts who give false or untrue statements in the relevant documentation. Any shareholder of any of the companies involved in the division who has suffered loss or damage by reason of misconduct in the preparation or implementation of the division by a director of any such company or by the expert, if any, who has made a report is entitled to have such loss or damage made good to him by—
- in the case of misconduct by a person who was a director of that company at the date of the common draft terms of division, by that person;
- in the case of misconduct by any expert who made the expert report in respect of any of the companies involved in the division, by that person.
Any shareholder of any of the companies involved in the division who has suffered loss or damage arising from the inclusion of any untrue statement in any of the following, namely:
- the common draft terms of division;
- the explanatory report;
- the expert’s report, if any;
- the division financial statement, if any,
is entitled to have such loss or damage made good to him by every person who was a director of that company at the date of the common draft terms of division, or in the case of the expert’s report, by that person.
Liability for Misstatement II
A director of a company is not liable if he or she proves
- that the document or report as the case may be, was issued without his knowledge or consent and that, on becoming aware of its issue, he forthwith informed the shareholders of that company that it was issued without his knowledge or consent, or
- that as regards every untrue statement he had reasonable grounds, having exercised all reasonable care and skill, for believing and did, up to the time the division took effect, believe that the statement was true.
A person who makes an expert report in relation to a company shall not be liable in the case of any untrue statement in the report if he proves—
- that, on becoming aware of the statement, he forthwith informed that company and its shareholders of the untruth, or
- that he was competent to make the statement and that he had reasonable grounds for believing and did up to the time the division took effect believe that the statement was true.
Where any untrue statement has been included in—
- the common draft terms of division,
- the explanatory report, if any; or
- the division financial statement, if any,
then each of the persons who was a director of any of the companies involved in the division at the date of the common draft terms of division or, in the case of the foregoing explanatory report or division financial statement, at the time of the report’s or statement’s preparation; and any person who authorised the issue of the document; is guilty of a category 2 offence.
Where any untrue statement has been included in the expert’s report prepared, the expert and any person who authorised the issue of the report is guilty of a category 2 offence.
In any proceedings against a person in respect of either of the above offences, it is a defense to prove that, having exercised all reasonable care and skill, that the defendant had reasonable grounds for believing and did, up to the time of the issue of the document concerned, believe that the statement concerned was true.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.31 Courtney
Keane on Company Law 5th Ed. (2016) Ch. 31Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Gore-Browne on Companies
Palmer’s Company Law