Mergers and Amalgamations

In one line

A merger is a scheme under s.230 with extra machinery: the Tribunal is shown that the arrangement is for a reconstruction or amalgamation, extra documents including the share exchange ratio and the expert's valuation are circulated, and the sanctioning order can transfer the undertaking, continue proceedings, dissolve the transferor without winding up and provide for dissentients.

In exam wording: under section 232(1), where an application is made to the Tribunal under section 230 and it is shown that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking, property or liabilities of the transferor company is required to be transferred to the transferee company, or is proposed to be divided among and transferred to two or more companies, the Tribunal may order meetings, and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis.

Why the law has this at all

A merger does everything a scheme does and one thing more: it moves an entire undertaking, with its property, its contracts, its litigation and its employees, from one legal person to another, and then dissolves the first. Doing that by ordinary law would require a separate conveyance of every asset, a novation of every contract, the consent of every counterparty, and a winding up.

The section replaces all of that with a single court order operating by force of statute. Section 232(4) is the provision that does it: by virtue of the order the property is transferred and the liabilities become the transferee's, and property may be freed from any charge. Nothing else in company law transfers property by judicial fiat in that way, and it is the reason a merger is worth its procedural cost.

Two consequences follow, and they explain the rest of the section.

Because the order is so powerful, the disclosure has to be fuller. Hence the extra documents in s.232(2), and in particular the directors' report explaining the share exchange ratio and any special valuation difficulties.

Because everybody's rights change at once, the order has to be able to deal with everybody. Hence the ten heads in s.232(3), which cover the transfer, the allotment of shares, pending proceedings, dissolution, dissentients, non-resident shareholders, employees, listing, fees and incidental matters.

Section 232(1) and (2): what has to be shown and circulated

232(1): the trigger. An application under s.230, plus proof of two things: that the arrangement is for or in connection with a scheme of reconstruction involving merger or the amalgamation of two or more companies; and that the whole or any part of the undertaking, property or liabilities of the transferor is to be transferred to the transferee, or divided among and transferred to two or more companies. The second limb covers a demerger as well as a merger. Sub-sections (3) to (6) of s.230 apply mutatis mutandis, so the notice, voting, regulator notification and majority requirements of the previous chapter carry across unchanged.