Mergers

Part 9 – Reorganisations, Acquisitions, Mergers and Divisions

The part of the Act which deals with mergers is based on S.I. No. 157 of 2008, which enacted the EC (Cross-Border Mergers) Regulations 2008.

Up to now, it hasn’t been possible to perform a merger between two private Irish companies. The Act changes that.

This part of the Act applies where at least one of the merging companies is a company limited by shares (“CLS”) and none of the merging companies is a PLC (Section 462).

The provisions apply to three kinds of merger: (1) merger by acquisition; (2) merger by absorption; (3) merger by formation of a new company (Section 463).

The Summary Approval Procedure can be used, so that a merger can be performed without the involvement of the High Court (Section 464).

If the Summary Approval Procedure is used, certain provisions of this part of the Act can be disapplied, and they are set out here (Section 472).

Schemes of Arrangement and Mergers are mutually exclusive. A merger can be effected by either route, but not by using part of the rules under Schemes of Arrangement and part of the rules under Mergers (Section 465).

The common draft terms of a merger must be drawn up by the directors of the merging companies. What must be included in that document is outlined here (Section 466).

The directors must also prepare – except if it is a merger by absorption – an explanatory report, which gives details of the draft terms of the merger and explains the legal and economic implications of those terms. The details that must be included in the explanatory report are set out here (Section 467). Practitioners should note the circumstances in which this section need not apply, which are set out in subsection (4).

One or more experts must be appointed to examine the common draft terms of a merger and make a report on those terms to the shareholders of the merging companies (Section 468). When the report must be delivered, and what it must include, is set out in subsection (7). Section 468 does not apply if the merger is one by absorption, or if the successor company holds 90% of the voting shares of the transferor company. Alternatively, if every member of each merging company agrees that such an expert report is not necessary, then the rule will not apply.

If the Summary Approval Procedure is not being used – which means a general meeting is not being held – and if the latest statutory financial statements of any of the merging companies relate to a financial year which ended more than 6 months before the date of the common draft terms of the merger, the company, if it is availing of the exemption from having to hold a general meeting, must prepare a merger financial statement (Section 469). This is new.

Section 470 sets out the documents which must be sent to the CRO.

Members must be allowed to inspect a number of documents relevant to the merger, which are set out here (Section 471), but the company can be exempted from providing that service if it publishes those documents on its website for a continuous period of at least 2 months which begins at least 30 days before the Summary Approval Procedure is used to carry out the merger.

The rules in relation to general meetings of merging companies are set out here (Section 473).

Section 474 is new and allows the shareholders to consent to being sent copies of the merger documents by e-mail. Shareholders are not allowed to ask for copies of those documents where they can be downloaded freely from the company’s website.

With regard to meetings of classes of shareholders of merging companies, the provisions of Chapter 4 of Part 3 of the Act – “variation on capital” – apply (Section 475), with the exception of two sections, Section 88(9) and Section 89.

If a minority shareholder wishes to have his shares bought out by the successor company, Section 476 applies.

The price is determined by the stock exchange ratio set out in the common draft terms of the merger.

The shares which the company buys will be treated as treasury shares.

The minority shareholder may put in a request to have his shares bought not later than 15 days either (1) after the date of publication of the notice of delivery of the common draft terms of the merger or (2) of the date on which the resolution of the transferor company was passed.

All merging companies must make a joint application to Court for an order confirming the merger.

The application must be accompanied by a statement of the size of the shareholding of any minority shareholder who requested that his shares be bought by the successor company, and a statement of the steps which the successor company proposes to take to comply with the minority shareholder’s request.

The procedure for the confirmation order is set out here (Section 480). If the Court confirms the merger, a certified copy of the order must be sent to the CRO. The Court nominates an officer of the Court to do that (Section 482).

Section 478 provides that any creditor who – at the date of the publication of the common draft terms of a merger – is entitled to any debt or claim against the company is entitled to be heard by the court before it confirms the order.

Protection for holders of securities is provided in Section 479.

Directors and experts are subject to civil liability for misconduct in relation to the preparation or implementation of a merger. This is set out in Section 483.

Shareholders have locus standi to issue proceedings where they have suffered loss or damage because of misconduct, or the inclusion of untrue statements in any of the relevant documents, which are set out in subsection (2).

The first defence for directors is to show that the document was issued without his knowledge or consent, and that once aware of it, he straightaway informed the shareholders of this.

The second defence for directors is to show that he had reasonable grounds for believing – and did believe up to the time the merger took effect – that the statement was true. A director must show that he took “all reasonable care and skill” in this regard.

Section 484 provides for criminal liability for untrue statements in merger documents. The maximum penalty is a €50,000 fine or 5 years in prison (or both).