The creation of the Eastern Caribbean Securities Exchange has increased awareness among managers of public listed companies of the need to ensure that the companies they manage continue to be commercially viable. Companies whose level performance is below par, or that find it increasingly difficult to prosper in the new economic world order, will now have to seek and implement measures to boost performance and increase shareholder wealth. For those managers who are seriously considering whether a merger or a consolidation would be viable option for their companies, understanding the rules and procedures governing these phenomena will help them make their decision.
Who can merge or consolidate
The legal regime governing mergers and consolidations in Anguilla is contained in the Companies Act RSA c 65 (the Act). Under the Act, two or more companies (each referred to as a constituent company) can either: (i) merge into one of the constituent companies (the surviving company); or (ii) consolidate to form a new company (the consolidated company). However, if the merger or consolidation is to occur between one or more Anguillian companies and one or more foreign companies, the merger or consolidation will only be allowed if the laws of the foreign companies’ country permit the transaction. If the companies proposing to merge are parent and subsidiaries, the merger would only be allowed if the subsidiaries are incorporated or continued under the Act, and where the parent would be the surviving company.
Procedure for merger or consolidation
Once a decision to merge or to consolidate has been made, the directors of each of the constituent companies must draw up, and approve by resolution, a written plan of merger or consolidation. This plan must contain the information specified in the Act, which includes the name of the companies involved in the merger or consolidation and the terms and conditions of the proposed merger or consolidation.
After receiving director approval, the plan must then be approved by the shareholders of each constituent company – unless the merger is between a parent and its subsidiaries, in which case no shareholder approval is necessary. Notice of the meeting to approve the plan must be given to each shareholder (even those that are not entitled to vote on the merger or consolidation) and the notice must be accompanied by a copy of the plan, a copy of the directors’ resolution approving the plan and such further information as might be necessary to enable the shareholder to understand the nature and implication of the merger or consolidation. Where the merger is between a parent and its subsidiaries, all that is required is for a copy of the plan, or an outline of it, to be given to each shareholder of the subsidiary constituent companies, unless the shareholder waives that requirement. The shareholders of the parent company are not required to receive notice of the plan.
The Act prescribes different approval requirements for each constituent company, depending on the statute under which they have been incorporated. Where a constituent company is incorporated under the Act, the plan must be approved by a special resolution of the shareholders. For a constituent company incorporated under another statute, approval by an ordinary resolution would suffice unless the provision of that statutes state otherwise.
Registration of merger or consolidation
After the plan is approved, each constituent company must prepare and execute articles of merger or consolidation, setting out the information stated in the plan, and submit it to the Companies Registry for registration.
If the surviving or consolidated company is to be incorporated or continued under the laws of a foreign jurisdiction, the Act prescribes certain additional documents that must be filed with the Registry before the articles can be registered. These documents are: (i) an agreement that service of process relating to any obligations of the constituent company, or any proceeding to enforce the rights of dissenting shareholders of the constituent company, can be served on the surviving or consolidated company in Anguilla; (ii) an irrevocable appointment of the Registry as the agent to accept service; (iii) an agreement to pay promptly to dissenting shareholders any amount to which they are entitled under the Act; and (iv) a certificate of merger or consolidation issued by the appropriate authority of the foreign jurisdiction where the surviving or consolidated company is incorporated or, if no certificate is issued, such evidence of merger or consolidation as the Registry deems acceptable.
Upon registration of the articles, the Registry will issue a certificate. The merger or consolidation is effective on the date shown in the certificate. If the merger or consolidation involves a foreign company, the merger or consolidation is effective at the date the articles are registered, or 30 days from that date if the surviving or consolidated company is incorporated or continued under the Act, or as provided for by the laws of the foreign jurisdiction if the surviving or consolidated company is incorporated in a foreign jurisdiction.
Effect of merger or consolidation
As soon as the merger is effective, the surviving or consolidated company, if incorporated or continued under the Act, has all the rights, privileges, immunities and powers of each of the constituent companies, including the rights of ownership of all property previously owned by each constituent company and liability for all claims, debts and other obligations of the constituent companies. If the surviving or consolidated company is incorporated or continued under the laws of a foreign jurisdiction, it will have all the aforesaid rights, privileges, immunities, powers and obligations subject to anything to the contrary contained in the laws of the foreign jurisdiction.
Emphasis on increasing returns
As the investment climate in Anguilla gains momentum, greater emphasis will be placed on the need to increase profits by decreasing operation costs and increasing market share. Many managers would therefore be forced to take a second look at mergers or consolidation as a means of ensuring that their shareholders continue to reap the maximum benefits from their investment.
