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An Example of How Mergers Work in Real World Restructures

Welcome to Query Of The Week

Welcome to this week’s Query Of The Week. Each week our technical team respond to a huge number of client queries and in this segment, we share with you the most common questions that keep coming up time and time again.

In this week’s Query Of The Week, John Murphy discusses a query in relation to mergers and acquisitions under the Companies Act 2014, where a parent company is seeking to absorb a number of subsidiaries.

We hope you enjoy this week’s, Query Of The Week.

Mergers Under CA 2014 (Company Law Bootcamp 5)

If this Query Of The Week was of interest to you, you will also be interested in our Mergers Under CA 2014 (Company Law Bootcamp 5) webinar.

Full details for this webinar can be found below:

Webinar Duration 1 Hour
Fee €38
Presenter John Murphy – OmniPro
Category Financial Reporting

Query Of The Week – Video Transcript

(Please note that this is a direct unedited transcript of the spoken word as recorded on the video) 

Hello and welcome to this week’s Query of the Week.

This week’s query looks at mergers and more specifically mergers by acquisition, the Companies Act 2014 and how they can be used.

The particular query that came in from the client, is probably best to looked at by way of just drawing out the structure on a chart.

We had a holding company and we had a number of subsidiaries. There were four subsidiaries and effectively these four subsidiaries they were all doing all related work, they weren’t very different. The client just kind of wanted to just consolidate his group. He was happy that if he did all this work and this trade related information or work in the one subsidiary that it would be cleaner for his group, he wouldn’t need all these companies, so it would be lot more efficient, a lot less time wasted on accounts,  things like that that he felt was just wasteful.

The client there didn’t actually worry about risks being in these other subsidiaries because they weren’t, it wasn’t a risky business they were in. The other reason why they wanted to do a merger was that they were wanting to make sure that all the contracts transferred over. So let’s if one was missed it would still be there.

They came to us with, “Look, what’s the best option here?”  Obviously, the options were there were, share for undertakings and then the other one was a merger. The share for undertaking for this client, y we went through, you transfer out the trades and subsidiaries into this, remaining subsidiary and a share for undertaking. The client didn’t want to get involved in that because, it didn’t think there’s any risk in transferring all the liabilities over to new company. Nor did they want to get involved and have numerous transfer agreements and legal people involved in it.

Based on that, we advised the merger by acquisition was to be done. The option can only be done where you’re transferring the business, this subsidiary up to the parent, the 100% parent. In this particular case what was going to be done was these three subsidiaries were going to transfer into this subsidiary and in return that subsidiary over here was going to issue shares to the ultimate parent.

What you ended up with afterwards was just two companies, the parent and the subsidiary. And that subsidiary now has amalgamated all the trades of the other three companies and its own company into the one so that they could operate from the get-go. Obviously, this is what the client wants. It achieved what it wanted.

What had to be done here was that, terms of merger in section 465, which effectively dealt with, what is required in company law. Well, who’s the transferrer? Who’s the transferee? What’s the effective date from the accounting perspective? What shares are going to be issued in relation to the transfer of the business over to the remaining subsidiary company? They were all dealt with as one agreement. They didn’t have to have four different terms of merger. They could be all amalgamated into one. So that was beneficial, less time, less effort.

Obviously, you do have to transfer of undertaking, takes your employees. Give them 30 days’ notice as well. But then the advantage of this was that, look, what had to be also done was a SAP 206 So that summary approved the procedure under SAP 206, so you can only do a merger between Irish domestic companies if you follow the requirements of section 206 of the Company’s Act. And part of one of those is that there must be a declaration, not a statute declaration, just a director’s declaration saying that, “After the transfer the directors are happy that the person who’s receiving the entities will be able to pay the debts of that company and the companies that are coming in within 12 months of the merger occurring.” So once that’s done, and that declaration is done for every entity.

Iin our example it’d be all these, one, two, three, four entities here that would have to do that director’s declaration each for themselves and there’d be a G1 special resolution included. There’s tax reliefs there that you would look at. We’re going to look a bit more at this, on mergers from a tax perspective, a company law perspective, accounting perspective in our webinar coming up on the 13th of November. If you’re interested in this area please log on to the webinar and we’ll go through this in a little bit more detail.