AMALGAMATION OF COMPANIES

 

Amalgamation of Companies.

Osborn’s Concise Law Dictionary 12th Edition at page 28 defines Amalgamation as the merger of two or more companies or their undertaking. In essence, two or more companies may Amalgamate and continue as one company which may be the one of the amalgamating companies or may be a new company.

Section 237 of the Companies Act No. 1 of 2012 (herein referred to as “the Act”) provides for amalgamation. It states that two or more companies may amalgamate and continue as one company which may be one of the amalgamating companies or may be a new company. The amalgamating companies amalgamate to form the amalgamated company.

A company has power under section 10(1)(g) of the companies act to alter its memorandum of association to enable it to amalgamate with any other corporate company as emphasized in the case of Bread Limited Vs Uganda Company Ltd & Industrial Machinery ltd [1975] HCG 214

For a company to be authorized to amalgamate, there must be an amalgamation proposal and proposed incorporation documents pursuant to section 238 of the Act.

The procedure for amalgamation of companies under the Act is as follows;

1.    Amalgamation proposal.

1.1.       Section 239(1) of the Act states that the amalgamation proposal must set out the terms of amalgamation and in particular;

(a)  the manner in which shares of each amalgamating company are to be converted into shares of the amalgamated company; 

(b)  if any shares of an amalgamating company are not to be converted into shares of the amalgamated company, the consideration what the holders of those shares are to receive instead of shares of the amalgamated company;

(c)  any payment to be made to any shareholder or director of an amalgamating company, other than a payment of the kind described in paragraph (b);

(d)  and details of any arrangements necessary to perfect the amalgamation and to provide for the subsequent management and operation of the amalgamating company. 

1.2.       Section 239(2) of the Act states that an amalgamation proposal may specify the date on which the amalgamation is intended to become effective. Where shares of one of the amalgamating companies are held by or on behalf of another of the amalgamating companies, the amalgamation proposal must provide for the cancellation of those shares when the amalgamation becomes effective without any payment in respect of those shares and no provision may be made in the proposal for the conversion of those shares into shares of the amalgamated company. This is pursuant to section 239(3) of the Act.

2.    Incorporation documents of the amalgamated company. 

2.1.       Section 240(1) of the Act provides that the incorporation document for authorization under section 238 must be in the prescribed form and must in particular state—

(a)  the name of the amalgamated company; 

(b)  the share structure of the amalgamated company, specifying—

(i)             the number of shares of the amalgamated company; and

(ii)          the rights, privileges, limitations and conditions attached to each such share or class of share and its transferability, if different from fundamental rights attached to shares; 

(c)  the full names, postal and residential addresses of each director of the amalgamated company; 

(d)  in the case of a public company or a private company with a secretary, the full name, postal and residential address of the secretary of the amalgamated company;

(e)  the registered office of the amalgamated company;

(f)   the place where the amalgamated company’s records are to be kept if not the registered office; and

(g)  the amalgamated company’s accounting reference date. 

2.2.       Section 240(2) of the Act states that the incorporation document may also contain— 

(a)  any restriction on the amalgamated company’s capacity and powers;

(b)  and any provision permitted by this Act or otherwise relating to the internal management of the amalgamated company.

2.3.       Section 240(3) of the Act states that if the proposed amalgamated company is to be the same as one of the amalgamating companies, the incorporation document for authorization may comprise the incorporation document of that amalgamating company and proposed notice of change of the incorporation document.

3.    Manner of authorizing amalgamation.

3.1.       Section 241(1) of the Act states that the directors both companies must resolve that the amalgamation is in the best interest of the shareholders of the company and the amalgamated company will be solvent immediately at the time the amalgamation becomes effective.

3.2.       Section 241(2) of the Act states that the directors have to vote in favor of the resolution to amalgamate as per section 241(2) of the companies Act.

3.3.       After passing the resolution to amalgamate, the directors must sign a certificate stating that amalgamation is in the best interest of the shareholders and the amalgamated company will be solvent as per section 241(2) of the companies Act.

3.4.       The directors of each of the amalgamating companies must send to each shareholder of that company not less than twenty working days before the amalgamation is to take effect –  

(a)  Copy of amalgamation proposal.

(b)  Copy of the proposed incorporation document.

(c)  Copies of signed certificates given by each set of directors setting out that;

(i)             The amalgamation is in the best interest of the shareholders of the company

(ii)          The amalgamated company will be solvent immediately after the amalgamation is effective, and a statement of any material interests of the directors.

(d)  Any further information necessary to enable reasonable shareholder understand the nature and implications for the company and its shareholders of the proposed amalgamation.

4.    Special resolution

4.1.       Section 241(4)(a) of the Act states that the amalgamation must be authorized – 

(a)  by the shareholders of each of the amalgamating companies by special resolution; and 

(b)  by authorization of any class of an amalgamating company where any provision in the amalgamation proposal contain an alteration to that company’s incorporation document. 

5.    Registration of amalgamation.

5.1.       Section 242(1) of the Act states that after authorization of amalgamation pursuant to section 241, the following documents must, within ten working days after the special resolution has been passed, be delivered duly completed, to the registrar the following documents in relation to the amalgamated company;

(a)  its incorporation document or if the amalgamated company is the same as the one of the amalgamating companies, notice of change of incorporation document; and

(b)  consents in the prescribed form signed by each of persons named as director or secretary in the incorporation document.

(c)  certificates required by section 243.

6.    Certificate of amalgamation.

6.1.       Section 243(1) of the Act states that the registrar must send to the company or person from whom the documents required under section 242 were received—

(a)   if the amalgamated company is the same as one of the amalgamating companies, a certificate of amalgamation in the prescribed form, together with an amended certificate of incorporation if necessary; or 

(b)   if the amalgamated company is a new company, a certificate of amalgamation in the prescribed form together with a certificate of incorporation in the prescribed form. 

6.2.       Section 243(3) prescribes that on the date shown in a certificate of amalgamation—

(a)  the amalgamation becomes effective;

(b)  the registrar must remove the amalgamating companies other than the amalgamated company from the register;

(c)  the amalgamated company succeeds to all the property, rights and privileges of each of the amalgamating companies;

(d)  the amalgamated company succeeds to all the liabilities of each of the amalgamating companies;

(e)  proceedings pending by or against any amalgamating company may be continued by or against the amalgamated company;

(f)   any conviction, ruling order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and

(g)  the shares and rights of the shareholders in the amalgamating companies are converted into the shares and rights provided for in the incorporation document of the amalgamated company.