Notes relevant to both forms of amalgamation

Solvency test

The solvency test is common to both long and short form amalgamations.  Its requirements are set out in sections 4(3)(a)(i) and 4(3)(a)(ii) Companies Act 1993.

• Section 4(3)(a)(i), the 'retrospective part', requires the directors of the amalgamating companies to combine the assets and liabilities figures from the financial statements from the last balance date of the amalgamating companies to ascertain that if the amalgamation had happened at that date, the value of the assets would have exceeded that of the liabilities.  This process provides them with a firm historical base from which to look forward, knowing that nothing adverse has happened up to the time of resolving; and
   
• Section 4(3)(a)(ii), the 'prospective part', then requires the directors to think ahead to the likely or stipulated date for the amalgamation and ask themselves what reasonably foreseeable event could reduce the value of the assets or add to the liabilities.  If nothing is apparent, the directors can tick off on both parts of the test and give the certificate.

Section 223(c) certificates

The section 223(c) certificates are also common to both long and short form amalgamations.

In these, the board of each amalgamating company certifies that the amalgamation has been approved in terms of the Act and the constitution.  In essence, this assures the Registrar that the directors have made the decision to amalgamate following the procedures in the Third Schedule to the Companies Act 1993. 

Note | The Third Schedule to the Act sets out how decisions are made either

• at a meeting convened on formal notice as evidenced by voting as recorded in minutes, or
• by resolution in writing in lieu of a formal meeting where the decisions are made instead by signing.

The Third Schedule can be altered in whole or in part in a constitution (section 160).  It is therefore essential to check the constitution of each amalgamating company to ensure the correct procedure for making a decision is followed. 

Note | this has no connection to the continuity of the constitution of an amalgamating company into the amalgamated company; it relates solely to how the decision to amalgamate is reached in each case, so it is not remarkable that one amalgamating company might have a constitution and another might not.

If a particular amalgamating company does not have a constitution, the certificate will refer only to approval in terms of the Act.

Section 223(e) certificate

• Where applicable, the section 223(e) certificate is given only by the board of the intended amalgamated company.  If both of two amalgamating companies have creditors the amalgamation will produce a positive effect for the creditors of one company, and a corresponding negative effect on the other.  In a multi-company amalgamation there may be a positive or negative effect for the creditors of more than one company.
  
  It is the negatively affected creditors whose post-amalgamation position must be considered, to see if the reduced ratio of claims of creditors to assets (asset backing) will prejudice them by putting repayment at risk.  If this is not likely, the board will give the certificate.  Note that this and the retrospective part of the solvency test under section 4(3)(a)(i) are the only accounting aspects of a short form amalgamation.  A long form amalgamation might involve other calculations.
  
  If just one or none of the amalgamating companies has creditors, the section will not be applicable and no certificate is required.
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Consents are the only statutory form

There is only one statutory form to be filed with the amalgamation documents and that is Form 13 [55 kB PDF] Consent and Certificate of directors of amalgamated or proposed company.  A separate consent form must be provided by each director of the intended amalgamated company.

 You will need PDF viewing software

To download and view the forms described here you will need PDF viewing software.

Common errors made

Frequent errors are omissions in the resolutions from the statutory requirements that function as a checklist, and purported comparisons of constitutions between or among amalgamating companies rather than providing for continuity of one amalgamating company’s constitution into the amalgamated company.

Tips for drafting your amalgamation documents

When drafting amalgamation documents, it is recommended that for the amalgamating companies in their pre-amalgamation state, full names are used each time or suitable abbreviations, for example,  ABC Limited ("ABC"). 

The term "the amalgamated company" is then suitable on amalgamation and post-amalgamation.  For example, "That X and Y will be the directors of the amalgamated company."

Avoid using the term "company" - this can become confusing since there is always more than one company in an amalgamation.

In this way, a common text can be created where only the name in the heading and possibly the signatories need be changed.  This avoids the need to prepare a new document for each company involved in the amalgamation.
 

The Registrar offers a checking service. 

Send near-final drafts by fax to +64 9-916-4559 marked for the attention of the Legal Team – Amalgamation Checking.  List the company names and numbers on the facsimile cover sheet, indicating which is to be the amalgamated company.

This is of mutual value, as the Registrar can check the company records for any unusual feature (a company is being removed for another reason, incorrectly stated names etc).

With popular dates such as 31 March, 30 June and 31 December in particular, this enables much of the work to be done in advance to everyone’s benefit, meaning the certificate of amalgamation will be available that much more promptly. 

We will reply to these requests as promptly as possible.