Section 113 of the South African Companies Act No. 71 of 2008 (“Companies Act”) regulates the proposals of amalgamations or mergers of companies in South Africa. The Companies Act provides that amalgamation or merger can be proposed between two or more profit companies including a holding company and its subsidiary companies.

The Companies Act provides that companies proposing to amalgamate or merge are required to enter into a written agreement which must contain the following essentialia:

  1. the proposed memorandum of incorporation of the new company to be formed as a result of the proposed amalgamation or merger;
  2. the name and identity of each director of the new company to be formed as a result of the proposed amalgamation or merger;
  3. the manner in which the securities of each amalgamating or merging company are to be converted into securities of the new company to be formed as a result of the proposed amalgamation or merger, or whether such securities will be exchanged for other property;
  4. if the securities of each amalgamating or merging company will not be converted into securities of the new company to be formed as a result of the proposed amalgamation or merger, the consideration that the holders of such securities will receive in addition to or instead of securities of the new company to be formed as a result of the proposed amalgamation or merger;
  5. the manner of payment of any consideration instead of the issue of securities of the new company to be formed as a result of the proposed amalgamation or merger or of any other juristic person the securities of which are to be received in the proposed amalgamation or merger;
  6. details of the manner in which the assets and liabilities of the amalgamating or merging companies will exist after the implementation of the amalgamation or merger;
  7. details of any arrangement or strategy necessary to complete the proposed amalgamation or merger including the subsequent management and operations of the new company to be formed as a result of the proposed amalgamation or merger; and
  8. the estimated cost of the proposed amalgamation or merger.

A proposed amalgamation or merger can only be given effect to if the board of each amalgamating or merging company considers whether, upon implementation of the amalgamation or merger, each amalgamated or merged company will satisfy the solvency and liquidity test.

If the board has a reasonable belief that the proposed transaction will satisfy the solvency and liquidity test, it may submit the agreement for consideration to the shareholders at a shareholders’ meeting for final consideration.