Part VII: Acquisition of Companies
Chapter 1: Merger
314. Merger shall require the approval of the board of directors and of the general meeting, in each of the merging companies, in accordance with the provisions of this Chapter.
Approvals by a company
315. (a) The board of directors of a merging company, in considering whether to approve the merger, shall deliberate and determine, taking into account the financial situation of the merging companies, whether in its opinion there is a reasonable suspicion that the surviving company will not be able to pay its debts to its creditors following the merger.
(b) Where the board of directors determines that there is a suspicion as referred to in subsection (a), it shall not approve the merger.
Merger that prejudices a company’s ability to pay its debts
316. Where each of the boards of directors of the merging companies has approved the merger, they shall jointly draw up a proposal for the approval of the merger (hereinafter “the merger proposal”), and shall sign it.
317. (a) A merging company shall forward the merger proposal to the Registrar of Companies within three days of the date of convening of the general meeting.
(b) A merging company shall notify the Registrar of Companies of the resolution of the general meeting, within three days of the date of passing of such resolution, shall inform the Registrar of the giving of notice to creditors under section 318, and shall provide him with a copy of any court ruling under sections 319 or 321, within three (3) days from the date of such ruling.
Notice to the Registrar of Companies
318. (a) A merging company shall send its merger proposal to the secured creditors of the company no later than three days after the date of submitting of the merger proposal to the Registrar of Companies.
(b) A merging company shall notify its unsecured creditors of the merger proposal and of the contents thereof as shall be prescribed by the Minister.
Notice to creditors
319. The court may, on the application of a creditor of a merging company, order the delay or prevention of the merger if it finds that there is a reasonable suspicion that, following the merger, the surviving company will not be able to pay the debts of the merging company, and it may make orders ensuring the rights of the creditors.
320. (a) Merger shall require the approval of the general meeting of each of the merging companies.
(b) Where shares in the absorbed company are divided into classes, the merger shall also require the approval of class meetings of the absorbed company.
(c) In voting at the general meeting of a merging company the shares in which are held by the other merging company or by a person holding twenty-five percent or more of any kind of means of control in the other merging company, the merger shall not be approved if a majority of the shareholders present at the vote who are not either part of the other merging company, the person so holding or anyone acting on behalf of either of these, including relatives or corporations under their control, are opposed to it.
(d) Where a person holds twenty-five percent or more of any kind of means of control in a number of merging companies, the merger proposal shall require approval in accordance with the provisions of subsection (c) in each of the said merging companies.
(e) Shareholders taking part in the vote shall notify the company prior to the vote, or, if the vote is by way of voting paper, on the voting paper, whether their shares are held by the other merging company or by a person set out in subsection (c), or not so held; a shareholder who fails to notify as aforesaid, shall not vote and his vote shall not be counted.
(f) The provisions of section 275(a)(3) shall not apply to a merger proposal requiring approval as provided in subsection (c).
Approval of merger
321. (a) Where the general meeting of a merging company approves a merger proposal under section 320(a), the court may, on the application of the shareholders holding at least twenty five percent of all the voting rights in the company, rule that the company has approved the merger even if the merger was not approved by the entire general meeting of the merging company under section 320(b) or even if the merger proposal did not gain the majority required in the general meeting of the merging company under section 320(c).
(b) The court shall not confirm an application to approve a merger unless it is convinced that the merger proposal is fair and reasonable, taking into account the estimation of the value of the merging companies, and the consideration offered to the shareholders.
Confirmation by court
322. Where a company receives a notice from the Controller of Restrictive Business Practices, as defined in the Restrictive Trade Practices Law, 5748-198810, the company shall notify the Registrar, within three days of the date of receipt of such notice, whether the notice may delay the effecting of the merger, prevent it or remove such delay or prevention; where notice has been received by the Registrar of Companies of a prevention or delay, the merger shall not be effected so long as such prevention or delay has not been removed.
Restrictive trade practices
323. Where the Registrar of Companies has received all the approvals required under this Chapter for merger from each of the merging companies, and seventy days have passed since the date on which the merger proposals were produced to the Registrar of Companies, the merger shall be effected as follows:
(1) all the assets and liabilities of the absorbed company, including conditional, future, known and unknown obligations, shall be transferred to and vested in the surviving company;
(2) the surviving company shall be regarded as the absorbed company in respect of any legal proceedings, including execution proceedings;
(3) the Registrar shall transfer the register of charges, as defined in section 181 of the Companies Ordinance, of the absorbed company, to the register of charges of the surviving company;
(4) the absorbed company shall be liquidated and the Registrar shall strike it from the Register;
(5) the Registrar shall provide the surviving company with a certificate evidencing the merger and shall register the fact of the merger in the records of the surviving company.
Consequences of merger
324. The provisions of this Chapter shall not preclude a company from undertaking by contract or undertaking in its articles of association to refrain from the effecting mergers or making the effecting of mergers conditional.
Freedom to impose conditions
325. A floating charge over all or some of the assets of one merging company imposing a limitation on the right of the company to create charges shall not have preference over a charge created in the other merging company prior to the merger.
Floating charge in merging company
326. The Minister may prescribe provisions for implementing this Chapter, including provisions in respect of details to be included in the merger proposal and regarding the additional rights in respect of information to be provided to creditors or to classes of creditors, and in respect of the registration of transactions stemming from the merger; regarding a public merging company, such provisions shall be prescribed after consultation with the Securities Authority.
Regulations regarding merger
327. (a) A company that was incorporated prior to the commencement of this Law shall be deemed to have included a provision in its articles of association to the effect that the approval of a merger requires a majority of three quarters of the persons present and voting at the general meeting of the company, and the provisions of section 20 shall apply.
(b) Where floating charges have been imposed, at least one of which was created prior to the commencement of this Law, over the assets of a number of merging companies, such that after the merger it will not be possible to distinguish between the assets subject to each floating charge, the floating charges shall crystallize upon the merger, unless the consent of the creditors whose rights are secured by such charges is obtained for the amendment of the charges in such a way as to create a distinction between the assets subject to each charge, or a division of the consideration from realization of the assets subject to such charges.
Transitional provisions concerning merger