Corporate Update: New Domestic Merger Process a Success
20 March 2017
A new procedure for the merger of Irish companies was introduced by the Companies Act 2014. Over 60 mergers have been completed and over 100 companies have been dissolved under this regime so far. It is proving to be a successful and positive addition to Irish company law.
The Companies Act 2014 (the “Act") introduced a number of significant reforms to Irish company law. One reform was the introduction of a statutory procedure for the merger of two Irish companies. It is now possible to transfer by operation of law all of the assets and liabilities of one Irish company to another Irish company, and then dissolve the former company.
Types of domestic merger introduced by the Act
The Act provides three ways of effecting such a merger:
- Merger by acquisition – where a company acquires all of the assets and liabilities of one or more companies in exchange for the issue of shares in the acquiring company to the members of the acquired companies, with or without cash payment. The acquired company is then dissolved without going into liquidation
- Merger by absorption - an existing company acquires all the assets and liabilities of its wholly-owned subsidiary and the subsidiary is dissolved without going into liquidation
- Merger by formation - where companies transfer all of their assets and liabilities into a newly formed company in exchange for the issue of shares in the newly-formed company to the members of the existing companies with or without cash payment. The acquired companies are then dissolved without going into liquidation
Types of company that can merge
Provided that one of the merging companies is a private company limited by shares, all company types, except for public limited companies (“PLC”), can use the above legal regime to effect each of the above types of merger. A PLC can only be a successor company in a merger by formation and cannot be a company in the other types of merger. A different legal regime applies to a PLC merging by acquisition or by absorption.
The process involves
- The directors of the companies involved agreeing common draft terms of merger
- The directors of the merging companies preparing an explanatory report, save for a merger by absorption or if waived with the unanimous consent of the shareholders
- The appointment of an expert to prepare a report for the members of the merging companies on the common draft terms of the merger, save for a merger by absorption and in certain other specific circumstances
- In certain instances, the preparation of merger financial statements
- Notification of the common draft terms of merger to the Companies Registration Office (“CRO”) and publication by the CRO of certain information relating to the merger in the CRO Gazette in the case of a merger via a court application
- Notification of the merger by each merging company in one national daily newspaper in the case of a merger via a court application
- In the case of a Summary Approval Procedure (“SAP”), the making of a declaration of solvency by the directors of each of the merging companies and the passing of unanimous resolutions by the members approving the merger. The declaration must be filed in the CRO within 21 days of the merger taking effect
- The merging companies making certain documents available for inspection by any member of the company at its registered office
Summary Approval Procedure or Court Order
The merger can be implemented by the directors of each merging company following the SAP or by an application to Court.
A Court Order will only be made subject to certain requirements being fulfilled including showing that proper provision has been made for any creditor.
While the SAP does avoid an application to Court and is likely to be the cheaper option for the parties, it is based on a declaration of solvency of the directors of each company involved in the merger and the passing of unanimous resolutions by the members. The directors can be personally responsible without any limitation of liability for all or any of the debts or other liabilities of the successor company if it is found that they made the declaration without having reasonable grounds for their opinion.
The introduction of domestic mergers has proven to be a positive addition to Irish law. It benefits groups which wish to reorganise and simplify their structure by, for example, merging and dissolving companies in the group without the need to put them into liquidation. We anticipate continued interest in the use of this relatively new merger process.
For more information, please contact a member of our Corporate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.