Mergers

Private Company Mergers I

There are separate provisions applicable to mergers involving PLCs and to mergers where none of the companies is a PLC, or at least one of the merging companies is a private company limited by shares. A merger may be by acquisition, absorption or by the formation of a new company.  The method for merger provided under the legislation is exclusive.

Unlike with the case with a PLC, the merger may be effected in accordance with the summary approval procedure.  Alternatively, where the summary approval procedure is not adopted, the arrangement may be confirmed by the High Court.  It may also be possible to proceed by way of a scheme of arrangement. In this case, High Court approval is also required.

The summary approval procedure is not available for mergers where there is no shareholder unanimity or where the directors of the companies are unwilling or unable to give the required statutory declaration.


Private Company Mergers II

In the context of mergers, the summary approval procedure requires a unanimous resolution of the shareholders of both merging companies passed not more than 12 months prior to the commencement of the merger. A directors’ declarations by all, or by a majority of the directors of each of the companies, is required to be made not more than 30 days prior to the resolution.

The declaration must set out and confirm

  • the amount of the assets and liabilities of the merging company, at the latest practicable date and in any event within three months;
  • that the company is able to pay its debts and liabilities; and
  • that the successor company, following the merger will be in a position to pay the debts and liabilities of all predecessor companies as they fall due.

A document must accompany each of the declarations confirming that the common draft terms of the merger provide for such particulars of each relevant matter as will enable each of the prescribed effects, to operate without difficulty in relation to the merger.

Compliance with the many of the below mentioned procedural steps can be avoided where the summary approval procedure is employed to effect the merger.


Terms of Merger & Reports

The common draft terms of merger are to set out certain information, including

  • particulars of the company’s proposed share exchange ratio and any cash payments;
  • the proposed effective date;
  • the rights to be conferred by the successor company on members of the transferor companies or companies enjoying special rights;
  • special advantages granted to directors of a merging company or any person appointed;
  • information on the valuation of assets and liabilities to be transferred; and
  • the date of the financial statements.

The holder of securities other than shares, in any of the companies being acquired to which special rights are attached, shall be given rights in the successor company, which are at least equivalent to those they possessed in the company being acquired. This right does not apply where the alteration of the rights in the acquiring company has been approved by a majority of the holders of such securities at a meeting held for that purpose, by the holders of those securities individually, or where the holders of those securities are entitled under the terms of those securities to have their securities purchased by the successor company.

A merger financial statement must be published and prepared where the summary approval procedure is not being employed.  The merger financial statement must be drawn up in the format of the latest balance sheet, at a date within three months of the date of the common draft terms of the merger.  There are provisions in relation to valuations in the balance sheet.

The requirement does not apply to a merging company if all persons entitled above to vote at general meetings agree that it should not apply. Consent is also required from the holders of other securities with voting rights.


Required Reports I

The directors must prepare an explanatory report in respect of each of the merging companies. Each is to be prepared by its own directors. The board of directors is to approve the explanatory report in writing.

They shall give particulars of and explain the common draft terms of the merger.  It is to explain the legal and economic grounds for, and the implications of the common draft terms of the merger, particularly with reference to the proposed share exchange ratio, the organisation and management structure, recent and future commercial activities and the financial interests of the holders of the shares and other securities in the company. This requirement does not apply where all the shareholders (and other securities holders with voting rights) consent.

An expert’s report is required, other than

  • for a merger by absorption;
  • where an existing successor company holds 90% of the voting shares of the transferor; or
  • where all shareholders otherwise consent.

Required Reports II

The expert is be appointed by the directors in relation to each merging company or by the court in relation to all merging companies on the application of all of them.  The expert must be a person qualified to act as auditor.  The expert must be independent of the companies.

The expert’s report is to be made available 30 days prior to the passing of the resolution to approve the merger. It is to

  • set out the methods used to arrive at the proposed share exchange ratio;
  • give an opinion on the adequacy of the methods used;
  • give an opinion as to whether the exchange ratio is fair and reasonable;
  • indicate values arrived that using each method;
  • give an opinion as to the relative weight given to such methods;
  • specify any valuation difficulty which may have arisen.

The expert may require information from officers of the merging companies.  It is an offence to give false or misleading information or to fail to give the requisite information.


Publicity Requirement I

Each of the merging companies must deliver to the CRO a copy of the draft terms of the mergers approved by the directors and certain other particulars.  Notice of the delivery of the draft common terms is to be published by the CRO in the CRO gazette and by each merging company in a national newspaper.

The notice must specify certain matters, including that a statement of the common draft terms of merger, explanatory report and the financial statements are available for inspection by the members of each merging company and that a statement of the common draft terms of merger are available from the CRO.

The publication obligations are reduced where the merging companies publish free of charge on their websites for at least two months commencing 30 days before the meeting, the common draft terms of the merger. In this case, they must cause to be published in the CRO Gazette and in at least one newspaper circulating in the district where is principal office or registered office is situated, notice of such publication of the common draft terms.


Publicity Requirement II

Each of the merging companies shall make available inspection, free of charge to any member,

  • particulars of the draft terms of merger;
  • statutory and financial statements;
  • an explanatory report where required;
  • an expert’s report where required;
  • each merger financial statement in relation to the merging companies required to be prepared.

There are provisions for where companies have traded for less than three years.

The provision does not apply if the merging company publishes free of charge on its website the above documents, for a period of two months commencing at least 30 days before the meeting or the employment of the summary approval procedure.


Types of Statutory Merger

A merger may be by acquisition, absorption, or by the formation of a new company. A merger by acquisition is an operation in which a company acquires all the assets and liabilities of one or more other companies that is or are dissolved without going into liquidation in exchange for the issue to the members of that company or those companies of shares in the first-mentioned company, with or without any cash payment.

A merger by absorption means an operation whereby, on being dissolved and without going into liquidation, a company transfers all of its assets and liabilities to a company that is the holder of all the shares representing the capital of the first-mentioned company.

A merger by formation of a new company means an operation in which one or more companies, on being dissolved without going into liquidation, transfers all its or their assets and liabilities to a company that it or they form in exchange for the issue to it or to their members, of shares representing the capital of the other company, with or without any cash payment.

Where a company is being wound up it may become a party to a merger by acquisition, a merger by absorption or a merger by formation of a new company, provided that the distribution of its assets to its shareholders has not begun at the date of the common draft terms of the merger.


Summary Approval Procedure

Where one company is a private company and none is a PLC, the merger may be put into effect under and in accordance with the summary approval procedure or in accordance with the following provisions.  The procedures are alternatives. Approval may also be required under Competition and other legislation in particular cases.

Where the procedure is employed for that purpose, then on the passing of the resolutions by each of the merging companies, the merger in accordance with the draft terms of merger and supplemental documents, take effects on the date specified.

The summary approval procedure for mergers requires unanimous resolutions of the shareholders of each the merging companies, passed not less than 12 months prior to the commencement of the merger. Each of the merging companies must forward with each notice of the meeting at which the resolution (or written resolution) the proposed text of the resolution and a copy of the declaration.


Directors’ Declaration I

The declaration must be in writing and be made at a meeting of the directors held not earlier than 30 days before the date of the general meeting or written resolution of the shareholders. It is to be made by a majority of the directors, or by both directors if there are two directors only.

The director’s declarations must be made by all or a majority of the directors more than 30 days prior to the members’ resolution. The declarants are required to state the total amount of the assets and liabilities of the merging company in question at a latest practicable date before the making of the declaration, and in the event of date, more than three months before that date, and to give an opinion on the capacity of the successor company formed following the merger, to pay the debts and liabilities for predecessor companies as they fall due.


Directors’ Declaration II

The directors’ declaration must be accompanied by a report drawn up in the prescribed form, by a person who is qualified to be the statutory auditor of the company. It must state whether, in the opinion of that person, the declaration is not unreasonable.

The directors’ declaration must also be accompanied by a document prepared by the declarants either confirming that the common draft terms of merger provide for such particulars of each relevant matter as will enable each of the prescribed conditions to be fulfilled without difficulty in relation to the merger; or specifying such particulars of each relevant matter as will enable each of those conditions to be fulfilled without difficulty in relation to the merger.

A copy of each declaration must be delivered to the CRO. If there is a failure to do so, the court may on application declare the procedure to be nonetheless valid for all purposes.

In the case of a merger, upon the delivery to the CRO of each required declaration, the Registrar shall register the dissolution of the transferor company or companies concerned.


Incorrect Declaration

Where a director of a company makes a declaration without having reasonable grounds for his opinion, the court on the application of a liquidator, creditor, member or contributory of the company, the successor company or of the ODCE, may declare that the director shall be personally responsible, without limitation of liability, for all or any of the debts or other liabilities of the company or successor company, as the case may be.

If a company or, as the case may be, a successor company is wound up within 12 months after the date of the making of the declaration and its debts are not paid or provided for in full within 12 months after the commencement of the winding up, it shall be presumed, until the contrary is shown, that each director of, as appropriate the company, or the merging companies, who made the declaration did not have reasonable grounds for the required opinion. If the court makes this declaration, it may make such further directions as it thinks proper for the purpose of giving effect to the declaration.


Alternative Procedure I

Where the summary approval procedure is not used, then court confirmation in accordance with the following procedures is required.

The common draft terms of merger must be approved by a special resolution passed at a general meeting of each of the merging companies, held not earlier than 30 days after the date of publication of the requisite notices. The notice must contain a statement of each shareholder’s entitlement to obtain on request, free of charge, copies of the key documents. The directors are to inform the shareholders in general meeting of any change in the assets and liabilities between the date of the draft terms of merger and the date of the general meeting.

Approval by a special resolution, of the merger, is not required in the case of any transferor company in a merger by absorption or in the case of the successor company in a merger by acquisition if the below conditions are satisfied.

  • the required notice of delivery of the common draft terms to the CRO is published in a newspaper at least 30 days before the passing by the transferor company of the resolution;
  • the members of the successor company are entitled to inspect the copies of the above documents and obtain them on request;and
  • the right to requisition a general meeting is not exercised.

Alternative Procedure II

The right to requisition a general meeting may be exercised by shareholders of the successor company, who together hold not less than 5 percent of the paid-up capital entitled to vote at general meetings.

Copies of the documents must be made available. They may be made available by e-mail where shareholders have consented to the use of electronic means of communications. In this case, copies of the documents may be available for download and print from the website in lieu of the above requirements.

Where the share capital of any of the merging companies is divided into classes, the consent of the relevant class is required to the variation of class right.

Where the special resolution approving the merger, has been passed by each of the merging companies, a minority shareholder in a transferor company, may within 15 days, request the successor company to purchase his shares in cash. The successor company is obliged to purchase the shares at a price determined in accordance with the share exchange ratio set out in the draft terms of merger. The shares must be treated as treasury shares.


Court Confirmation I

An application must be made to the court for an order confirming the merger. The application to the court for confirmation is made jointly by the merging companies. It is to include details regarding the purchase of the shareholding of shareholders who have requested to be purchased. A creditor of a merging company is entitled to be heard in relation to confirmation.

The court may confirm the merger if

  • the requirements of the legislation have been complied with;
  • proper provision has been made for any minority shareholder who has requested repurchase and any creditor of a merging company who objects to the merger;
  • the rights of holders of securities with class rights are safeguarded
  • the provisions in relation to the variation of rights attached to any class of shares in any of the merging companies have been complied with.

Court Confirmation II

The effect of the order is that

  • all, assets and liabilities of the transferor companies are traneferrd to the successor;
  • in the case of a merger by acquisition or a merger by formation of a new company, the shareholders (other than those requesting to be purchased out) become members of the successor company;
  • the transferor company or companies are dissolved;
  • legal proceedings affecting the transferor company continue by and against the successor;
  • the successor company is obliged to make any cash transfer as required by the common terms of merger;
  • every offer, contract, agreement or instrument is amended so that the successor is substituted for the transferor party; irrespective of whether they are expressed to be personal or not.

The successor company is to comply with registration and other requirements required by law for the transfer of the assets. A copy of the order may be produced to the Property Registration Authority and other registrars, who are to register the change in registered owner. The court may make special orders and provisions as is necessary in the circumstances.

If the court makes an order confirming the merger, a copy of the order is to be filed with the CRO as the court may direct. The (CRO) Registrar is to publish notice of the order in the CRO gazette.


Breach of Process I

There are provisions for civil and criminal liability on the part of the directors and experts if they make misleading statements in any of the documents or if they are guilty of misconduct at any stage in the process of the merger.

Shareholders of any of the merging companies who have suffered loss arising from the inclusion of an untrue statement in the draft terms, explanatory report, expert reports or financial statements are entitled to compensation for the loss incurred. Liability rests with every person who was a director of the company at that time, or in the case of an expert report, with the person who made the report.

A director of a company shall not be liable if he or she proves that the document or report was issued without his or her knowledge or consent and that on becoming aware of its issue, he or she forthwith informed the shareholders of that company that it was so issued or that as regards every untrue statement he or she had reasonable grounds, having exercised all reasonable care and skill, for believing and did, up to the time the merger took effect, believe that the statement was true.


Breach of Process II

A person who makes a 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 or she was competent to make the statement and that he or she had reasonable grounds for believing and did up to the time the merger took effect, believe that the statement was true.

Where any untrue statement has been included in the common draft terms of merger, the explanatory report, or the merger financial statement, then each persons who was a director of any of the merging companies at the date of the common draft terms of merger or, in the case of the foregoing explanatory report or merger financial statement, at the time of the report’s or statement’s preparation.

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 the expert and any person who authorised the issue of the report is guilty of a category 2 offence.

It is a defence to the offences to prove that, having exercised all reasonable care and skill, 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

Primary References

 

Companies Act 2014 Part 9 Ch.3 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.22   Courtney

Keane on Company Law 5th Ed. (2016) Ch. 32 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

Shorter Guides

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

UK Sources

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

Palmer’s Company Law