Mergers of companies or selling a business

Under the Companies Act 2014, it is possible for a private limited company to be involved in a merger of companies. Under the previous Companies Acts, this was only available to public limited companies. PLC’s still have the option to merge under Part 17 of the 2014 Act.

None of the merging companies under Part 9 of the Companies Act 2014 can be a Public Limited Company and one of the companies must be an LTD company (private company limited by shares, registered under Part 2 of the Companies Act 2014) (See section 2 and 462 Companies Act 2014 for definition).

There are several means of achieving a merger. It can be done by means of the Summary Approval Procedure set out in Part 4 of the Act or by the means of merger available under Part 9. Acquisition can be separately employed under Chapter 1 of Part 9 of the Act. Under the Part 9 merger procedure, Form DM1 is submitted together with the Common Draft Terms. Court permission then required. Following the merger, the transferor companies are dissolved without entering liquidation.

Merger can be by acquisition, absorption or formation of a new company and can be made under Part 9 of the Act.

Merger by Acquisition is where a company, without going into liquidation, is dissolved and its assets and liabilities are transferred to a company in exchange for shares in the acquiring company with/without any cash payment.

Merger by Absorption is where a company, without going into liquidation, is dissolved and its assets and liabilities are transferred to a company that is the holder of all of the shares representing the capital of the dissolving company.

Merger by formation of a new company – one or more companies, without going into liquidation, is/are dissolved and the assets/liabilities are transferred to a company in exchange for shares in the new company with or without any cash payment.

Procedure: Summary Approval Procedure

The Companies Registration Office (CRO) must receive the following documents from each of the companies involved. Please note that it is a requirement of the Act that separate declarations/resolutions are made by EACH individual company in the process. One form will not cover all the companies involved in the process.

• the special resolution to approve the merger. The resolution must be unanimous. It cannot be a majority decision
• the declaration made under section 206 Companies Act 2014. The declaration made under section 206 must be accompanied by a statement under section 209 Companies Act 2014. The declaration made under section 206 must be made by a majority of the directors

The declaration must include the following:

• the total amount of the assets and liabilities of the merging company in question as at the latest practicable date before the date of making of the declaration and in any event at a date not more than 3 months before the date of that making; and
• that the declarants have made a full inquiry into the affairs of the company and the other merging companies and that, having done so, they have formed the opinion that the successor company (within the meaning of Chapter 3 of Part 9) will be able to pay or discharge the debts and other liabilities of it and the transferor company or companies in full as they fall due during the period of 12 months after the date on which the merger takes effect
• the statement under section 209 must confirm that the common draft terms of merger provide for such particulars of each relevant matter as will enable each of the prescribed effects provisions to operate without difficulty in relation to the merger; or specifying such particulars of each relevant matter as will enable each of those effects provisions to operate without difficulty in relation to the merger

The declaration must be submitted within 21 days of the event. Upon receipt of both the declaration and the resolution, the registration of the merger can be effected. It needs to be made clear which company or companies is/are to be merged.

Procedure: Part 9 Merger. This procedure is an alternative procedure to the Summary Approval Procedure.

• Common Draft Terms submitted to the CRO together with Form DM1
• Form DM1 submitted for CRO Gazette notice
• advertisement placed in newspaper at least 30 days prior to meeting
• Directors Report, Experts Report and Financial Statements supplied to members (except where merger by absorption or where 90% agreement)

30 days later …….

• special resolution where required should be submitted
• court order finalizing merger should be submitted
• second CRO Gazette notice published by the Registrar on receipt of court order

Publication requirements in the CRO Gazette are met by the submission of the form DM1 and the subsequent court order. Where the common draft terms are published on a website instead of being submitted to the CRO, Form DM1 is still submitted.

There are many issues facing a business owner who is considering or facing a business closure or transfer.

Sole trader

If you are a sole trader, the process is quite straightforward. You simply cease trading and inform your clients and suppliers that you are no longer in business. You need to retain financial and other records for 6 years following closure.

If you use a business name, you must inform the Companies Registration Office that you have ceased trading within 3 months. You do this using Form RBN3.

You can cancel your tax and VAT registration with Revenue by filling out a Tax Registration Cancellation Notification (form TRCN1).

If you owe debts to creditors, you are personally responsible for those debts.

Company

Voluntary windup

If your business is incorporated as a company, you may wish to close it due to retirement or another personal reason. Liquidation is the process of winding up a company so that it no longer exists, by using its assets to pay its debts. A liquidator is the person appointed to wind up the company and whose principal function is to dispose of the company’s assets, pay or settle its debts and distribute any surplus to its members. When a company is in liquidation, the liquidator usually takes over the powers of the directors. There are 2 types of voluntary liquidation as follows:

• members' voluntary liquidation: This is when the members of a company that can pay its debts decide to wind it up. Part of this process is that a majority of the business directors must make a declaration of solvency. This declaration means that they have enquired into the affairs of the company and believe that it would be able to pay its debts within a certain period
• creditors' voluntary liquidation: This is when a company is unable to pay its debts when they are due. Sometimes this happens when a members’ voluntary liquidation is converted into a creditors’ voluntary liquidation. In other cases, it is when the members of a company decide that the company’s debts are such that it should be dissolved as a creditors’ voluntary liquidation

Insolvency

Involuntary liquidation means that a company is wound up by the court. This happens mainly at the initiation of any member or creditor of the company. In some circumstances, it can happen by order of the Minister for Enterprise, Trade and Employment. The court appoints the liquidator and supervises the liquidation process.

A receiver may be appointed by the court or when a loan agreement is being enforced. The receiver is appointed to take control of the assets of the company that have been used to secure a loan, such as a mortgage. Where a loan is secured on certain company assets, the receiver sells these assets on behalf of the lender.

If a company goes into examinership, it means that the company's financial health is ailing, but that the company is still potentially viable. An examiner is a person appointed to a company by the Court to assess the company’s position and prepare a rescue plan for the company.

You can find more details in this information booklet published by the Office of the Director of Corporate Enforcement. There are lists of insolvent companies in liquidation on the website of the Office of the Director of Corporate Enforcement.

Employees and closing a business

When a business is closed or transferred, the law protects the rights of employees in these circumstances.

If you no longer require the services of some of your employees (because you are in financial difficulties or you are reorganising your firm) you may need to make them redundant. All eligible employees are entitled to a statutory redundancy payment when they are made redundant.

You must ensure that fair procedures are followed. These include fair selection criteria, giving the employee at least 2 weeks’ notice and paying the redundancy payment due to the employee on the date of dismissal. Your employees may be entitled to bring a claim for unfair dismissal if they consider that they were unfairly selected for redundancy or consider that a genuine redundancy situation did not exist.

The Insolvency Payments Scheme is a scheme set up to pay certain outstanding entitlements concerning the pay of an employee where employment has been terminated. This is only in the instance of employer's insolvency.

Collective redundancies

The Protection of Employment Acts 1977-2007 provide that, where employers are planning collective redundancies, they are obliged to supply the employees' representatives with information. They must provide the representatives with specific information regarding the proposed redundancies and consult with those representatives at least 30 days before the first dismissal takes place. This is to see if the redundancies can be avoided or lessened, or if their effects can be mitigated.

In addition the Employees (Provision of Information and Consultation) Act 2006 requires employers of 50 or more people to consult with employees on substantial changes in the workplace, including proposals for collective redundancies.

Transfer of business

The European Union has created some regulations to safeguard employees' rights on transfer of undertakings. These safeguards are in place in Ireland and provide that the rights and obligations of the original owner arising from an employment contract relationship existing at the date of transfer shall by reason of such transfer, be transferred to the new owner (the transferee).

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