An amalgamation is an extremely useful process allowing two or more companies (including overseas companies) to merge. It provides an alternative mechanism for implementation of a merger or takeover other than by way of a scheme of arrangement or otherwise.
The process by which two or more companies can amalgamate is set out in Part VI of the Companies (Guernsey) Law, 2008 (as amended) (the “Law”), in sections 60 – 74.
The Law authorises two or more corporate bodies to amalgamate (the “Amalgamating Companies”) and thereafter to continue as one corporate body. The continuing company (the “Amalgamated Company”) may be either of the Amalgamating Companies, or a new company entirely.
Amalgamation will be permitted where the Amalgamating Companies are of the same type, being either:
- Protected cell companies;
- Incorporated cell companies;
- Incorporated cells of the same incorporated cell company; or
- Non-cellular companies.
This also applies to the equivalent corporate bodies in jurisdictions outside Guernsey.
The consent of the Guernsey Financial Services Commission (the “Commission”) will be required where any of the Amalgamating Companies are:
- A supervised company;
- A cell company;
- An incorporated cell; or
- An overseas company.
The Commission can impose specific terms and conditions on the amalgamation and generally reserves the right to vary or revoke these terms and conditions or to impose new terms and conditions.
The Law provides for a “long-form” amalgamation procedure and a “short-form” procedure. Further details of each procedure are set out below.
An amalgamation proposal (the “Proposal”) must be prepared which sets out the
proposed terms of the amalgamation and in particular:-
- The proposed name of the Amalgamated Company;
- The type of company it will be;
- Its registered office;
- The particulars of its directors;
- If the Amalgamated Company is to have a share capital, details of: the shares; the aggregate value of the shares; the amount to be paid and unpaid on the shares; the rights attaching to the shares; and, if there is to be more than one class of share, those details in respect of each class of shares;
- Details of how the interests and liabilities of the existing members of the Amalgamating Companies will be converted in relation to the Amalgamated Company or, if these won’t be converted, the consideration that the members will receive in relation to their interests and liabilities;
- Details of any other payments to be made to existing members or directors of either of the Amalgamating Companies; and
- Details of any other arrangements necessary to complete the amalgamation.
The Proposal must also set out the date on which it is intended to take effect.
If the shares of one of the Amalgamating Companies are held by or for one of the other Amalgamating Companies, the Proposal must provide for the cancellation of those shares without payment or other consideration, as and when the amalgamation becomes effective. These shares cannot be converted into shares of the Amalgamated Company.
The directors of each of the Amalgamating Companies must reach the view that the amalgamation is in the best interests of that company. Further, the directors must be satisfied on reasonable grounds that, immediately following the proposed amalgamation, the Amalgamated Company will satisfy the solvency test (i.e. the Amalgamated Company will be able to pay its debts as they become due and the value of the Amalgamated Company's assets will be greater than the value of its liabilities).
The directors must record their resolution on these matters in a signed certificate (the “Solvency Certificate”) which sets out these matters and, in particular, the directors’ grounds for their opinion on solvency. Under the Law, this solvency assessment requires the preparation of consolidated accounts for the Amalgamated Company, prepared on the presumption that the amalgamation has taken place.
The directors of each of Amalgamating Companies must then give copies of the following documents to each member, not less than 28 days before the proposed amalgamation date:
- The Proposal;
- The Solvency Certificate;
- A summary of the principal provisions of the proposed memorandum and articles (or a full copy of the memorandum and articles) of the Amalgamated Company (the “Memorandum and Articles”);
- A statement that, where the Memorandum and Articles have not been provided, a copy will be sent to those persons who request it;
- A statement of the material interests of any of the directors or officers in the Proposal; and
- Such further information as is necessary for the member to understand the nature and implications for the Amalgamating Company and its members of the proposed amalgamation.
The directors of each Amalgamating Company must give every creditor of that company at least 28 days’ notice of the proposed amalgamation.
Copies of the Proposal must be available for inspection by members or creditors, or any other party to which an Amalgamating Company is under any obligation or liability, at the registered office or any other place specified by the directors during business hours. Such persons must be provided with copies of the Proposal free of charge, if and when requested.
The Proposal must be approved (the “Approval”) by:-
- A special resolution of the members of each of the Amalgamating Companies (requiring 75% of the voting members’ approval); and,
- Where the Amalgamating Company is required by its Articles to obtain the consent of a particular class of members, a special resolution of that class.
Failure to comply with these provisions will be an offence on the part of the directors.
There is also a short-form amalgamation procedure available under the Law. This simplified procedure is only available in two specific instances. The first is where a subsidiary wishes to amalgamate with its parent company, with the parent company continuing as the Amalgamated Company.
The second is where two or more “sister” companies wish to amalgamate (i.e. where each company is a wholly-owned subsidiary of the same parent company).
Further, the short-form amalgamation process is only available where:
- Each Amalgamating Company is a company limited by shares; and
- The amalgamation is approved by a resolution of the directors of each of the Amalgamating Companies, with those resolutions confirming that:
- all shares in each of the Amalgamating Companies will be cancelled (other the shares in the Amalgamated Company), without payment or other consideration;
- the Memorandum and Articles of Incorporation for the Amalgamated Company shall be the same as those of the parent company (for a parent-subsidiary amalgamation) or the continuing “sister” company; and
- the directors are satisfied on reasonable grounds that the Amalgamated Company will satisfy the solvency test immediately after the amalgamation becomes effective.
Where companies wish to amalgamate using the short-form procedure:
- The directors of each Amalgamating Company shall give their creditors 28 days’ notice of the proposed amalgamation;
- The resolutions approving the amalgamation shall, taken together, constitute an approved Proposal (that is, there is no need to prepare a full proposal document and to obtain shareholder approval to the amalgamation – the resolutions of the directors of each Amalgamating Company are sufficient);
- The directors of each Amalgamating Company must sign a Solvency Certificate; and
- Copies of the resolutions constituting the Proposal must be available for inspection by members or creditors, or any other party to which the Amalgamating Company is under any obligation or liability, at the registered office or any other place specified by the directors during business hours, with copies of the resolutions provided free of charge, if and when requested.
Again, failure to comply with these provisions constitutes an offence by the directors.
Provisions Applicable to Both Long-Form and Short-Form Amalgamations
Obtaining the Commission’s Consent
If the Commission’s consent is required to the amalgamation (i.e. if one of the Amalgamating Companies is a supervised company, a cell company, an incorporated cell or an overseas company), the application for the Commission’s consent must contain:
- The Proposal (and the Approval, if the amalgamation is a long-form amalgamation);
- The Solvency Certificate;
- A Declaration of Compliance (Amalgamation) (the “Declaration”), which is a declaration by a director that
- all requirements of the Law have been fulfilled;
- A copy of the Memorandum and Articles;
- The proposed name of the Amalgamated Company;
- Where the claims of creditors in the Amalgamated Company will be greater proportionately than the creditors’ claims were in respect of one or more of the Amalgamating Companies, a statement confirming that the creditors of the relevant Amalgamating Companies will not be prejudiced by the proposed amalgamation;
- A document confirming the consent of the proposed directors of the Amalgamated Company to act;
- Any other information or documents which the Commission may require; and
- The fee prescribed by the Commission, currently £1,500.
Application to the Registrar
Once the consent of the Commission has been obtained (if required), an application must be made to the Registrar of Companies (the “Registrar”) attaching the Commission’s consent, the Declaration and (where the Amalgamated Company is to be a new company) providing the details required for incorporation of a new company.
The Registrar will then give notice of the amalgamation for such period as he thinks fit (normally 28 days).
If the Registrar approves the application, he will then issue a certificate of amalgamation and make the necessary changes in the Register of Companies. The Registrar must not issue a certificate of amalgamation until at least 28 days have passed since the date the application was made. The amalgamation becomes effective on the date set out in the certificate (which may be a date later than the end of the 28 day notice period but not earlier).
Power of the Royal Court to Intervene
Where the Royal Court is satisfied that the implementation of an amalgamation proposal would unfairly prejudice a member or creditor of an Amalgamating Company, or any other person to whom an Amalgamating Company is under any obligation or liability, it may at any time before the effective date of the amalgamation (or at any other time as the court may allow) make such order as it thinks fit. Such order could include directing that effect will not be given to the Proposal, modifying the Proposal or directing the directors to reconsider the Proposal.
The Effect of an Amalgamation
The Law also clarifies a number of matters arising from an amalgamation. Upon amalgamation:
- All property, rights, debts, contracts and obligations of the Amalgamating Companies immediately prior to amalgamation become property, rights, debts, contracts and obligations of the Amalgamated Company;
- All actions and other legal proceedings which could have been instituted or continued by or against the Amalgamating Companies may be instituted or continued by or against the Amalgamated Company; and
- A conviction, ruling, order or judgment in favour of or against the Amalgamating Companies may be enforced by or against the Amalgamated Company.
The Law also specifies that an amalgamation shall not be regarded as:
- A breach of contract or confidence or otherwise as a civil wrong;
- A breach of any contractual provision prohibiting, restricting or regulating the assignment or transfer of rights or liabilities; or
- Giving rise to any remedy, by a party to a contract or other instrument, as an event of default under any contract or other instrument or as causing or permitting the termination of any contract or other instrument or of any obligation or relationship.