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Legal Considerations Relating to Corporate Approvals to authorise and implement a Statutory Merger in South Africa

merger

If you are considering or you are in the process of merging or amalgamating two companies, the Companies Act 71 of 2008 (“Act”) prescribes certain sections that need to be observed and complied with.  The point of departure will be S 113 of the Act read together with S 115 and S 116. These sections set out the corporate approvals required to authorise and implement a statutory merger.

Corporate Approvals Requirements:

S113(1) provides that “two or more profit companies, including a holding and subsidiary companies, may merge if, upon implementation of the merger, the merged company will satisfy the solvency and liquidity test”.

S113(2) goes further and confirms that the two companies proposing to merge must enter into a written agreement setting out the terms contained in subclauses (a) upto (h) of the said section. These terms are the mandatory provisions that must be included.

Once the proposed merger agreement together with the long form memorandum of incorporation (“MOI”) is completed, the board of each of the merging companies must comply with the statutory requirements set out in S 113(4) (a) and (b), which respectively provides that:

  • Merged company must satisfy the solvency and liquidity test; and
  • If reasonable belief exists that (i) above will be satisfied, the merger agreement can be submitted to the shareholders in accordance with S 115 to obtain the required approval for the merger.

S 115 (1) requires that the merger needs to be approved in accordance S 115(2) which confirms that the approval of the merger must be done by way of a special resolution by a sufficient number of persons entitled to exercise a vote on this matter at a meeting specifically called for that purpose and passed by at least a 25% aggregate on terms of the voting rights.

Under the same section, depending on the size of the merger and entities involved, to ensure regulatory compliance, the necessary approval or exemption may be required from the regulatory authorities, such as the Takeover Regulation Panel or Competition Commission.

Implementation Requirements:

S116 applies after the resolution referred to above is adopted. It requires the respective parties to:

  • cause a notice of the merged company be given in the prescribed manner to all known creditors of that company.

If there are no objections by any creditors, S 116 (4) requires the merged company to file a notice, post the transaction, confirming that all the specific requirements outlined in S 113 and S 115 have been satisfied.  Such notice will contain the necessary confirmations.  The new MOI will be submitted to CIPC/Commission who will thereafter issue a registration certificate for the merged entity in line with the merger agreement.

It is essential to ensure that you comply with the aforesaid sections of the Act when proceeding with a merger or amalgamation. If you require any further clarity or legal guidance, please do not hesitate to contact BBP Law Attorneys.

 

 

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