Mergers and Divisions I
The Companies Act 2014 makes provision for the merger and division of PLCs. The provisions re-enact earlier EU derived regulations on mergers and divisions. The legislation allows for mergers and divisions of the entities themselves. They offer a formal and structured alternative to other techniques which involve the purchase of a company as a subsidiary or the transfer of businesses into a new corporate vehicle for the purpose of sale or acquisition and division.
Mergers under the statute may be effected in a number of ways. A merger by acquisition takes place when one company acquires the assets and liabilities of another company (the target), which is then dissolved without going into liquidation, in exchange for the issue to the member of the target of shares in the acquiring company with or without a cash payment.
A merger by absorption is an operation which takes place when the target company without being dissolved or going into liquidation, transfers all of its assets and liabilities to a company which becomes the holders of all of its shares. It includes cases where shares are held by nominees on behalf of the company.
Mergers and Divisions II
A merger by formation of a company takes place when two or more companies which are dissolved without going into liquidation, transfer all of their assets and liabilities to a new company that they or their controllers form, in exchange for the issue to their members of shares in the new company, with or without any cash payment.
Where a company is being wound up, it may become a party to a merger by acquisition, absorption or by the formation of a new company.
A merger must be implemented in accordance with the provisions in the legislation. The mechanism in the legislation is now mandatory.
Common Merger Terms
Where a merger is proposed, the directors of the merging companies must draw up the common draft terms of the merger in writing for approval. The draft terms must contain certain subject matter including;
- the name and registered office of each of the merging companies;
- as to each of the merging companies, whether it is a PLC or another type of company;
- save in the case of a merger by absorption, the proposed share exchange ratio and the amount of any cash payment;
- save in the case of a merger by absorption, the proposed terms relating to allotment of shares in the successor company;
- save in the case of a merger by absorption, the date from which holders of such shares will become entitled to participate in the profits of the successor company;
- the date from which the transactions of the company or companies being acquired are to be treated for accounting purposes as being those of the successor company;
- any special conditions, including special rights or restrictions, whether in regard to voting, participation in profits, share capital or otherwise, which will apply to shares issued by the successor company in exchange for shares in the company or companies being acquired;
- any payment or benefit in cash or otherwise, paid or given or intended to be paid or given to any expert mentioned below and to any director of any of the merging companies in so far as it differs from the payment or benefit paid or given to other persons in respect of the merger and the consideration, if any, for any such payment or benefit.
Where a new company is to be formed, it is to be accompanied by the constitution or draft constitution of the new company. The common draft forms of the merger as approved are to be signed on behalf of each of the merging companies by two directors.
The company shall prepare a merger financial statement in accordance with the format of its last annual balance sheet at a date not earlier than the third month before the date of the common draft terms of the merger. There are provisions the treatment of certain matters in the statements, in particular valuations. Subject to this, general statutory accounting provisions apply. The shareholders of both (or all) companies may waive this requirement.
The directors are to prepare an explanatory report in respect of each of the merging companies, prepared by the directors of each such company. The explanatory report shall give particulars and explain
- the common draft terms of the merger,
- the legal and economic grounds for and implications of the common draft terms of merger with particular reference to the proposed exchange ratio, organisation and management structure, recent and future commercial activities and the financial interests of the holders of the shares;
- the methods used to arrive at the proposed share exchange ratio and the reasons for the use of the methods,
- any special valuation difficulties that have arisen.
The holder of all of the shares with voting rights may agree to dispense with the requirement for an explanatory report.
Experts must be appointed to examine the common draft terms of the mergers and to report to the shareholders of the merging companies. This does not apply to a merger by absorption. The expert is to be appointed by the company directors and is to be approved by the court on the application made by the company. The requirement for court approval does not apply where all the shareholders of both (or all) companies agree that it shall not apply.
There may be one or more experts who act as joint experts. They must be persons who are qualified to be a statutory auditor and must be independent of the company.
The report to the expert shall be in writing and shall
- state the methods used to arrive at the share exchange ratio;
- give an opinion as to whether the proposed exchange ratio is fair and reasonable;
- give an opinion as to the adequacy of the methods used;
- indicate the values arrived at by using such methods;
- give the opinion of the expert as to the relative importance attributed to such methods in arriving at the value decided on; and
- specify any special valuation difficulties that have arisen.
The experts may require the officers of the companies to give information and explanations for the purpose of preparing their report. They make enquiries as they think fit, for the purpose of preparing the report. It is an offence for officers to fail to cooperate. It is an offence to give false or misleading information to an expert.
Filing and Publicity
Each merging company shall deliver the draft common terms of mergers to the CRO and, cause notice of delivery to be published in the CRO Gazette at least 30 days before the general meeting of each company which is to consider the draft terms of merger. Alternatively, they may publish a copy of the common terms of merger, free of charge on their websites for a period of at least two months commencing at least 30 days before the general meeting. They must also cause notice of it to be published in the CRO Gazette and in at least two daily newspapers circulating in the district in which their principal place of business or registered office is situate.
Each of the merging company shall make certain documentation available for inspection, free of charge, to their members at their registered office including
- the draft common terms of merger;
- statutory financial statements for at least three proceeding years;
- the above explanatory report;
- the above expert’s report;
- half-yearly financial reports where applicable.
There is alternative provision for publication on the company’s website.
Meetings to Approve
A general meeting of the merging companies must be held to consider and approve the draft terms of merger by special resolution. In the case of a merger by formation of a new company, the constitution of the new company must be approved. The shareholders must be informed of their rights to obtain the above documentation.
The directors must notify the shareholders at the meeting of any material change in the assets and liabilities between the date of the draft terms of merger and the general meeting.
The acquisition, whether by merger by acquisition or absorption, must be approved way of special resolution. Where the share capital of any of the merging companies is divided into shares classes, the approval of each class is required in respect of the variation of their rights.
There are alternative methods of approval available in some cases, subject to conditions being fulfilled. One or more members of the successor company who hold not less than five percent of the paid-up capital with the right to vote a general meeting may require the convening of a general meeting to consider the common draft of merge in such cases.
Court Application I
A shareholder in either (or any) company who has voted against the draft terms of the merger may within 15 days, request the successor company to acquire his shares for cash. The successor company is obliged to purchase the shares at the price determined in accordance with the shares exchange ratio set out in the common draft terms of merger. Shares so purchased are treated as treasury shares.
An application court must be made to the court in order confirm the merger. It is made jointly by the merging companies. It is to be accompanied by particulars of the shareholding of any shareholder who has requested the purchase of the shares under the last-mentioned provision and the measures taken to comply with the request.
There are provisions for the protection of creditors. A creditor in either / any of the merging companies, who is entitled to any debt or claim against the company, and can credibly demonstrate that the proposed merger would be likely to jeopardise that debt or put the claim at risk and that no adequate safeguard has been obtained from the company or the acquiring company, may object to the confirmation of the merger by the court.
Court Application II
If the court deems if necessary, in order to secure the adequate protection of the creditors, it may determine a list of creditors entitled to object, and the nature and amount of their debt. It may publish notices fixing a day in which creditors not entered on the list, are to claim to be so entered or are to be excluded.
Where a creditor entered the on the list, whose claim or debt has not been discharged or terminated, does not consent to the confirmation, the court may dispense with consent on either the company securing payment of the debt or claim as the court may direct or appropriating the amount of the debt or the undisputed amount of the debt. The court may dispense with this requirement, having regard to special circumstances, in respect of any class of creditors.
The holder of securities of the companies being acquired to which special rights are attached is to be given the same rights, or at least the equivalent rights to those possessed, in the company being acquired / substitute company.
Court Order to Confirm I
The court on being satisfied
- that the requirement of the legislation has been complied with;
- that proper provision has been made for any shareholder who is required to be purchased out;
- that proper provision has been made for any creditor who objects; and
- that the rights of securities and other shares are safeguarded,
may make an order confirming the merger.
The successor company substitutes for the transferor companies in all respects, as to all right and liabilities. The order of the court confirming the merger shall have the effect
- that all the assets and liabilities of the company shall, from the effective date, be transferred to the successor company;
- In the case of a merger by acquisition or a merger by formation of a new company (save those requested to be purchased out) the shareholders of the transferor companies shall become members of the successor/ substitute company;
- the transferor companies are to be dissolved;
- legal proceedings shall be continued by add against the successor company;
- the benefit of contracts, agreements and instruments are transferred.
Court Order to Confirm II
Provision is made for the automatic transfer of property. The order may be produced to and registered in the Property Registration Authority.
The court may make ancillary orders for the perfection of the merger. It may permit what would otherwise constitute giving a financial assistance or the reduction in capital.
A certified copy of the court order is to be registered with the CRO. This is published in the CRO gazette.
There are extensive provisions providing for civil and criminal liability for directors and other officers, who give false or misleading statements in relation to any procedural or substantive aspects of the merger or acquisition.
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Courtney
Keane on Company Law 5th Ed. (2016) Hutchinson
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