The concept of mergers and acquisitions were only introduced by the new Companies Act No. 71 of 2008 (“Companies Act”). Simply put, a merger and acquisition occurs when two or more profit companies combine their assets and liabilities into a new company or into one of the existing companies. While the requirements for entering into a merger are set out in section 113 read with section 115 of the Companies Act, the procedure to implement the merger is set out in section 116 of the Companies Act. This article will briefly discuss the procedure for entering into a merger.
Once the parties to a merger have obtained the requisite consents and approvals, as set out in section 115 of the Companies Act, the merger may be implemented.
The first step is to give notice to all known creditors of the merging companies. In order to satisfy this step, the companies need to send notice to all known creditors. The Companies Act does not regulate in what form or format the notice must be. It is thus incumbent upon the merging companies to take the necessary steps to inform creditors of the merger.
Once the notice to creditors has been delivered, the creditors have 15 days in which to apply to court for a review of the merger. The basis of the application by the creditor is that it will be materially prejudiced by the merger. A creditor will be successful with an application to review the merger if the creditor can prove that it is acting in good faith, that the merger would materially prejudice to it and that there are no other remedies available to it.
After the company has satisfied the requirements of section 115 of the Companies Act, it must file a notice of an amalgamation or merger with the Companies and Intellectual Property Commission (“CIPC”).
Upon receipt of the notice of amalgamation or merger, the CIPC shall issue a new registration certificate for each new company incorporated and deregister any of the amalgamating or merging companies. This seemingly automatic deregistration of the amalgamating or merging companies is a benefit of the statutory merger.
It is important to note that any civil or criminal proceedings may continue unhindered by the merger. The merger shall take effect on the day stipulated in the merger agreement and does not affect any liability of any party to the merger, including the directors of the merging companies.
The advantage of using the section 113 statutory merger is that all the assets and liabilities of the merging companies are combined by operation of law. This means that there is no cession, no transfer and no delegation. This could assist companies with contracts with clients and suppliers which prohibits cession and/or delegation.