Understanding the Amalgamation Process – How to Unite or Reconstructure Business Entities or Companies
Amalgamation is the process whereby two or more companies are combined so that the property, rights, privileges, liabilities and obligations of the amalgamating (discontinuing) companies are transferred to, and vest in, one amalgamated company. Besides transfers of shares and/or businesses, Singapore incorporated companies looking to reorganise or rationalise their corporate structure should keep in mind the option of carrying out an amalgamation pursuant to the Companies Act (Chapter 50 of Singapore) (the “Act”).
Various forms of amalgamations are provided for under the Act. Depending on the circumstances, a court order may be required. However, this note seeks to deal only with the amalgamation procedures under the Act where a court order is not required (generally referred to herein as “voluntary amalgamations”), and the issues to consider when undertaking such an exercise.
Forms of Voluntary Amalgamations
There are two forms of voluntary amalgamation procedures, the “short form” procedure and the procedure under sections 215B and 215C of the Act (often referred to in its abbreviated term, the “long form” procedure).
Short form amalgamations are available solely for companies within the same corporate group and where there are no minority interests. This procedure is only permitted between a holding company and one or more of its wholly-owned subsidiaries, or between two or more wholly-owned subsidiary companies of the same corporation.
Long form amalgamations are available to any company, and may allow two companies to continue as one company (which may be one of the amalgamating companies), or a new company. Due to the need to protect minority interests, more safeguards are built into the long form procedure.
Short Form Amalgamation
The short form amalgamation procedure is suited for intra-group restructurings and reorganisations. With the recent amendments to the Act, companies in a parent-subsidiary relationship may now amalgamate such that the subsidiary continues as the amalgamated company.
Broadly, the short form amalgamation procedure involves the following:
- Convening a general meeting of each amalgamating company to approve the amalgamation;
- Giving written notice of the proposed amalgamation to secured creditors, if any, of each amalgamating company, not less than 21 days before the date of the general meeting;
- Prior to the general meeting, the board of directors of each amalgamating company making statements and declarations of solvency, in compliance with the statutory requirements, in relation to the amalgamated company;
- Passing a special resolution to approve the amalgamation, which must contain certain prescribed terms, at the general meeting; and
- Lodging the relevant amalgamation documents and certain other compliance declarations with ACRA, and paying the prescribed fee.
Long Form Amalgamation
As noted above, long form amalgamation procedure is available to companies even if they do not belong to the same group, but contains additional protections to require enhanced disclosure. The following summarises the additional steps, over and above those for a short form amalgamation, that would need to be undertaken:
- An amalgamation proposal must be prepared and must set out, among other things, the necessary prescribed information relating to the amalgamated company and how the amalgamation is to be completed;
- In addition to solvency statements and declarations, the board of directors of each amalgamating company must pass a resolution that the proposed amalgamation is in the best interest of that amalgamating company;
- The statements and declarations of solvency by the board of directors must be given both in relation to each amalgamating company as well as the amalgamated company;
- Certain prescribed documents and information pertaining to the amalgamation must be provided to the secured creditors, if any, and every member of each amalgamating company, not less than 21 days before the general meeting to approve the amalgamation proposal; and
- A notice of the proposed amalgamation must also be published, not less than 21 days before the general meeting, in at least one daily English newspaper circulating generally in Singapore, and which must advertise the availability of the amalgamation proposal for inspection by any member or creditor of an amalgamating company, and such person’s entitlement to be supplied a copy thereof.
Considerations Before Undertaking An Amalgamation
The voluntary amalgamation procedures under the Act offer a clearly defined and efficient means for businesses looking to merge and/or streamline their corporate structure. However, deciding whether an amalgamation is suitable may not always be straightforward. Besides assessing whether the statements and declarations of solvency that are central to the procedures can be made, the following is a non-exhaustive list of other issues to be considered:
- whether there are any terms or prohibitions under any contract which may prevent any amalgamating company from undertaking an amalgamation (or otherwise merging), or which would otherwise require consent or approval for the amalgamation;
- whether contracts of any amalgamating company are governed by any foreign law, which may operate to adversely determine such contracts;
- whether any employment contracts need to be transferred, together with, if necessary, the relevant work permits and employment passes, and whether an amalgamation may give rise to other employment related issues (e.g. collective agreements);
- whether there are any proceedings against an amalgamating company and impact of such proceedings on the amalgamated company;
- whether there are any regulatory and operating licences that would need to be transferred or otherwise need to be re-applied for; and
- whether any amalgamating company holds any interests in land or shares in other companies, as the transfer of such interests may have stamp duty implications.
Given these matters, advice should be sought from suitably qualified advisers on the best approach to conduct any kind of corporate reorganisation or restructuring.
Related Article: Driving business growth through mergers and acquisitions
*Please note that the information herein is not comprehensive and is for general information purposes only. It does not constitute legal or other professional advice and we accept no liability for any reliance on the same. Specific advice should always be sought in relation to any legal issue.