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Company Mergers & Corporate Restructuring Services
We provide expert advice and documentation to ensure companies and groups are optimally structured including mergers, group reorganisations and entity simplifications.
Types of Mergers Under the Companies Act 2014
The Companies Act 2014 outlines three main types of mergers:
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Merger by Acquisition
In this type of merger, one company is dissolved without entering liquidation. Its assets and liabilities are transferred to another company in exchange for shares in the acquiring company, with or without a cash payment. -
Merger by Absorption
In a merger by absorption, a company that already owns all the shares of the dissolving company absorbs it. The assets and liabilities of the dissolving company are transferred without the need for liquidation. -
Merger by Formation of a New Company
Here, one or more companies are dissolved without entering liquidation. Their assets and liabilities are transferred to a newly formed company in exchange for shares in that new company, again with or without a cash payment.
Eligibility for Mergers
Under the Companies Act 2014, it is possible for a private limited company to be involved in a merger of companies. Under the previous Companies Acts, this was only available to public limited companies. PLC’s still have the option to merge under Part 17 of the 2014 Act.
The Companies Act 2014 allows private limited companies (LTDs) to participate in mergers, a change from previous legislation that limited mergers to public limited companies (PLCs). However, when using the merger process under Part 9 of the Act, none of the merging companies can be a PLC, and at least one of the companies involved must be a private limited company.
Processes for Merging Companies
There are several means of achieving a merger. It can be done by means of the Summary Approval Procedure set out in Part 4 of the Act or by the means of merger available under Part 9. Acquisition can be separately employed under Chapter 1 of Part 9 of the Act. Under the Part 9 merger procedure, Form DM1 is submitted together with the Common Draft Terms. Court permission then required. Following the merger, the transferor companies are dissolved without entering liquidation.
Merger can be by acquisition, absorption or formation of a new company and can be made under Part 9 of the Act.
Merger by Acquisition is where a company, without going into liquidation, is dissolved and its assets and liabilities are transferred to a company in exchange for shares in the acquiring company with/without any cash payment.
Merger by Absorption is where a company, without going into liquidation, is dissolved and its assets and liabilities are transferred to a company that is the holder of all of the shares representing the capital of the dissolving company.
Merger by formation of a new company – one or more companies, without going into liquidation, is/are dissolved and the assets/liabilities are transferred to a company in exchange for shares in the new company with or without any cash payment.
Processes for Merging Companies
The Companies Act 2014 provides two primary methods for mergers:
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Summary Approval Procedure (SAP)
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High Court Approval Process
The Summary Approval Procedure (SAP) is generally the more common and straightforward method, so this article focuses on SAP. However, in some cases, the High Court route may be necessary, as discussed below.
Summary Approval Procedure (SAP) for Mergers
The SAP involves two key requirements:
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Declaration of Solvency: A majority of the directors of each merging entity must declare that the successor company will be able to meet its own debts and the debts of the dissolving company as they come due within 12 months following the merger.
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Unanimous Shareholder Approval: All shareholders of each merging entity must unanimously approve the merger.
Under the SAP, companies must submit Form DM1 along with the Common Draft Terms to the Companies Registration Office. After receiving the court’s approval, the transferor companies are dissolved without going into liquidation.
High Court Approval Process for Mergers
In some cases, companies may choose to follow the High Court Approval Process instead of SAP. This may be preferable if there are complexities in the merger or if unanimous shareholder consent cannot be obtained. The High Court process requires court approval and may involve additional documentation and legal steps compared to SAP.
Types of Mergers Under the Companies Act 2014
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