Mergers under Malta law may occur both in the case of partnerships and limited liability companies. In the most common occurrences, there are two major ways for limited liability companies to be merged. In this publication, merger through acquisition shall be assessed.
A merger by acquisition is the operation whereby the acquiring company acquires all of the assets and liabilities of one or more other companies in exchange for the issue to the shareholders of the companies being acquired of shares in the acquiring company and a cash payment, if any, not exceeding ten percent (10%) of the nominal value of the shares so issued.
In this case, once the companies are merged together, the company not remaining in use may be dissolved without winding up, as it is dissolved automatically once the merger becomes effective.
Draft Terms of Merger by Aquisition
For a merger by acquisition to come into effect, a draft terms of merger shall be drawn up by the directors of both the acquiring company and the company being acquired wherein certain requisites must be satisfied. These include the amalgamating companies’ status, name and registered office, the amount of cash payment and the share exchange ratio; the date from which the holding of such shares entitles the holders to participate in profits and any special conditions affecting that entitlement, and from which the transactions of each of company in acquisition shall begin to carry out accounting tasks; the rights conferred by the acquiring company on the holders of shares to which special rights are attached and on the holders of debentures or other securities, or the measures proposed concerning them; and any special advantage granted to the experts providing their report.
Such draft shall then be signed by the company secretary and at least one director from each of the concerned companies to be given to the Registrar (MBR) for registration purposes. Moreover, such merger shall solely take place in the event of the approval by an extraordinary resolution of each company. Such approval shall not be valid unless the extraordinary resolution is adopted at least one month after the publication of the draft terms of merger and not later than three months therefrom.
Other Requisites
Additionally, the following are also required:
- a detailed report drawn up by the directors of the amalgamating companies on the merger’s draft terms wherein economic and legal terms must be set out;
- an independent experts’ report appointed by the amalgamating companies to assess the draft terms of the merger and have a report written to the shareholders; and
- the availability for the shareholders of the amalgamating companies to inspect relevant documentation at the registered office of each company at least one month before the fixed date for the general meeting which is set on deciding the draft terms of the merger, the annual accounting and directors’ reports.
Approval for Mergers & Acquisitions in Malta
The merger must be approved by extraordinary resolutions in general meeting of each of the amalgamating companies. All documentation as approved is submitted to the MBR, then the Registrar shall register the documents upon satisfaction of all requirements.
Even once all of the required documents are registered, the amalgamation of the two or more companies in question shall not take effect until three (3) months from the date of the last publication relating to the extraordinary resolutions approving the amalgamation.
During such period, any creditor of any amalgamating company whose debt existed prior to publication of the draft terms of merger, may contest the decision taken before a Court as long as a set of conditions are satisfied.
Upon the amalgamation becoming effective, then, the Registrar shall strike the name of the company/ies being acquired off the register and issue a certificate of registration, altered to meet the circumstances of the case and denoting the fact that the merger has taken place. Should such amalgamation not take place, through decision of the Court, the Registrar shall amend the registration thereof.
Contestation
Any interested party may contest the registration of the merger before the Court on the basis of specific grounds. The contestation shall be made by sworn application against the Registrar within one (1) month from the publication following the registration on the grounds that the merger was not drawn up in accordance with the law or within three (3) months from the publication following the registration on the grounds that the resolution of the extraordinary general meeting was void of voidable. In the case of there being a defect liable to render an amalgamation void or voidable, the Court shall grant the companies involved a period of time within which they may rectify the situation, if this is possible. The Registrar is obliged to publish a notice listing the Court decision in the Government Gazette or on the website maintained by the Registrar. Upon the delivery of the final judgement by the Court in which the application is not allowed to proceed, the Registrar shall amend the registration accordingly, as if the amalgamation procedure had never commenced.
Consequences of an Amalgamation
- The consequences of an amalgamation are the following:
- The acquiring company shall succeed to all the assets, rights, liabilities and obligations of the company or companies being acquired, both as between the companies being acquired and the acquiring company, as well as with third parties.
- The shareholders of the companies being acquired shall become shareholders of the acquiring company.
- The companies being acquired shall cease to exist.
- It is impossible for the shares in the acquiring company to be exchanged for shares in the companies being acquired either by the acquiring company or by the companies being acquired.
- In cases where the assets of the company being acquired include immovable property or rights relating thereto, the directors of the acquiring company shall cause within one (1) month from the coming into force of the amalgamation, a declaratory public deed to be published. This has to contain a detailed description of the immovable property or rights relating thereto. Once this is drawn up, such report has to be provided to the acquiring company, and a true copy of the said deed shall be filed with the Registrar within fourteen (14) days from the enrollment thereof at the Public Registry.
At the end of the process, the main aim of the shareholders is that of fully taking over a company by another, and thus, potentially limit internal bureaucracy, decrease costs and expenses and streamline corporate structures in the name of more efficient business models.
This article is part of a publication series on M&A Toolbox. Read Part 1: HERE
