Merger by Absorption

1. What is a Merger by Absorption

A merger by absorption occurs where a company (the "Target"), without going into liquidation, is dissolved and its assets and liabilities are transferred to another company that is the holder of all of the shares representing the capital of the dissolving company (the "Successor").

2. Types of Merger by Absorption

There are two methods for implementing a merger by absorption

1. the summary approval process (SAP); or
2. a High Court approval process.

The SAP method is more commonly advised in circumstances where the High Court approval process is typically more expensive and time-consuming.

3. How to Achieve a Merger by Absorption

        3.1. Due Diligence

The Successor should undertake a review of all relevant legal, financial, tax and business matters prior to the merger, identifying the types of assets held by the Target, and the specific legal actions that will be required. The review should pay particular attention to what pre-clearances should be obtained from Revenue and whether the status of any employees may be impacted by the merger. Suitable notifications should also be issued to any third parties service providers/customers to advise them of the merger

      3.2. Consultation with Employees

Under the TUPE Regulations employees of the Target shall transfer by operation of law to the Successor on the merger date and the Successor shall become their employer.

The Target must inform and consult with employee representatives at least 30-days before the merger date.

      3.3. Director and Expert Reports

In certain circumstance Directors of the transacting companies are required by the 2014 Act to prepare a Directors' Explanatory Report and an Expert's Report. These reports set out the terms of the merger and the expected impact. The requirement to produce these reports can be waived by the shareholders.  

       3.4. Common Draft Terms of Merger

This is a document that is agreed between the parties that sets out the terms of the merger and its prescribed effects. The document has certain minimum details required under the Companies Act, 2014.

N.B. there is a minimum statutory mandated 30-day wait period from the date of execution of the Common Terms of Merger agreement before the passing of the SAP Unanimous Written Shareholders' Resolution (see below).

Practically, this 30-day window allows shareholders to inspect the relevant documents prior to the passing of their resolution. The companies must therefore make the following documents available for inspection for a period of 30-days before the date of the shareholders' resolution;

1. the Common Draft Terms of Merger;

2. the reports prepared by the directors and expert (referenced above); and

3. the statutory audited financial statements for the preceding three financial years of each company involved (depending on whether the company is recently incorporated)

3.5. Summary Approval Procedure

  The Summary Approval Procedure requires the following from each company;

1.  
2. 3.5.1. Director's Declaration
3.  
4. The Directors of each company are required to make a statutory declaration confirming that;

1. the directors have conducted a full investigation into the affairs of the company; and,

2. having done so they are satisfied that, notwithstanding the merger, the company will for a period of 12 months thereafter, be able to pay its debts and liabilities as they fall due.

If it transpires that the declaration was not made on reasonable grounds, then the directors can be found personally liable for the debts of the company.

The declaration must be filed at the CRO within 21 days of the merger date.

The directors' declaration must be made no more than 30 days in advance of shareholder approval of the merger.

1.  
2.   3.5.2. Without Difficulty Document

Alongside the Director's Declaration a without difficulty document is also required, which confirms that the Draft Common Terms will enable the merger to occur without difficulty.

1.  
2.   3.5.3 Unanimous Written Shareholders' Resolution

Each Company is required to hold a meeting of its shareholders wherein the members will review the Director's Declaration and the Without Difficulty Document and vote to approve the proposed merger.

4. Effects of a Merger by Absorption

Once the Unanimous Written Shareholders' Resolution for each company is passed the merger shall take effect;

1. the assets and liabilities of the Target are transferred to the Successor;

2. the shareholders of the Target become shareholders of the Successors and any amounts due on the shares are paid;

3. the Target is dissolved;

4. the Successor replaces the Target in relation to all agreements, instruments or legal proceedings;

5. All employees of the dissolving Target will automatically transfer to the Successor

5. Imminent Legislative Changes (2024)

A Bill to simplify the current system for mergers by absorption is working its way through the houses of the Oireachtas[1]. Should the Bill be passed into legislation, multiple subsidiaries will be able to be absorbed into their parent company under the one transaction. This would greatly simplify the current system, which requires multiple separate transactions to be carried out.