Domestic Mergers Companies Act June 2017

Transcription

1 Domestic Mergers Companies Act June 2017

2 Chair John Gulliver, Tax Partner and Head of Tax Speakers Liam Brazil, Corporate Partner Kevin Foley, Audit & Assurance Partner, Grant Thornton Maura Dineen, Tax Partner 2

3 Introduction Domestic Mergers Summary Approval Procedure ( SAP ) Court Approval Merger Accounting Tax Questions Conclusion 3

4 Irish Structure Irish plc/ltd/dac Irish Subsidiary Irish Target 4

5 Classic Demerge and Sell Irish plc/ltd/dac DemergerCo Irish Subsidiary Irish Target Business 5

6 Domestic Mergers Liam Brazil, Corporate Partner Mason Hayes & Curran

7 Domestic Mergers Chapter 3 of Part 9 of the Companies Act 2014 (Chapter 3) Term merger has an exhaustive statutory meaning Three different types: a merger by acquisition; a merger by absorption; and A merger by formation of a new company 7

8 Before merger by acquisition Y X Shares Company A Successor company Company B Transferor company Company B s assets and liabilities are transferred to Company A. Company A issues shares to members in Company B. 8

9 After merger by acquisition Y X X Company A owns all assets and liabilities of Company B Company B dissolved 9

10 Before merger by absorption Company B Successor company Assets and liabilities 100% of shares held by Company B Company A Transferor company Company A transfers all its assets and liabilities to Company B. No issue of shares as consideration as Company B is sole shareholder in Company A. 10

11 After merger by absorption Company B Successor company Assets and liabilities Company A Dissolved Company A is dissolved and all assets and liabilities are vested in Company B. 11

12 Before merger by formation of a new company Y X Company A Transferor company Assets and liabilities C D Company B Transferor company Assets and liabilities Newco Successor company Companies A and B transfer all of their assets and liabilities to Newco. 12

13 After merger by formation of a new company Y X Y C X D Company A Dissolved Newco C D Company B Dissolved Newco acquires all assets and liabilities. 13

14 Types of companies that can merge For a Chapter 3 Merger No merging company can be a plc One company must be a private company limited by shares So: LTDs can merge with other LTDs LTDs can merge with DACS LTDs can merge with UCs LTDs can merge with CLGs Combination of the above so long as one LTD 14

15 Merger Process Each type of Merger can be effected by: Utilising the Summary Approval Procedure (SAP); or Applying to the High Court for an order Principal documents common to both: Common Draft Terms of Merger (CDT) Directors Explanatory Report Expert s Report 15

16 Common draft terms of merger The CDT must be approved in writing by the directors Must include mandatory details including: Details of the transferor company Details of the successor company Except in the case of a merger by absorption: share exchange ratio the proposed terms of allotment of shares in the successor company date from which shareholders will be able to participate in profits in successor company 16

17 Common draft terms of merger cont. The date from which the transactions of the transferor company are to be treated for accountancy purposes as being those of the successor company The rights to be conferred by the successor company on members of the transferor company or companies Information on the evaluation of the assets and liabilities to be transferred to the successor company The dates of the financial statements of the transferor companies used for the purpose of preparing the CDT 17

18 Directors Explanatory Report It must at a minimum explain: the CDT the legal and economic grounds for and implications of the proposed merger the organisation and management structures recent and future commercial activities and the financial interests of the holders of shares and other securities Not required for merger by absorption or if the requirement is waived by voting shareholders 18

19 Expert s Report No requirement to prepare one for a merger by absorption Other exceptions available for other types of merger Where required each merging company must appoint a qualified person: to examine the CDT to report on the CDT to the shareholders of the merging companies 19

20 Registration and Publication Deliver to the CRO within 30 days of the approval of the CDT: a copy of the approved CDT a notice of the prescribed form DM1 Filings and publication are not necessary if using the SAP Notice of the delivery must be published in the CRO Gazette and one national daily newspaper 20

21 Inspection Inherent protection in the merger procedure CDT and other relevant documents must be available for inspection at the registered office of each merging company for a period of 30 days before the passing of the resolution to approve the merger 21

22 SAP v Court Approval A merger cannot proceed unless it is approved by: virtue of SAP under Chapter 7 of Part 4; or the procedure laid down in Part 3 which involves obtaining a court order confirming the merger There are important differences between the SAP and court approval procedures 22

23 SAP - General Restricted Activity unanimous resolution (written resolution) declaration of solvency (at a board meeting) On the passing of the unanimous resolution the merger is effective from the date specified in the CDT or any supplemental document 23

24 SAP declaration of solvency Declaration of solvency: relates to all merging companies and successor company diligence filing in the CRO no later than 21 days after the merger has been effected CRO obliged to dissolve the transferor companies on delivery of the declaration to the CRO. Timing crucial with respect to the effective date of the merger 24

25 SAP section 209 Declaration has no effect unless accompanied by a supplemental document: confirming the CDT provides for such particulars of each relevant matter to 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 25

26 SAP prescribed effects Prescribed effects provisions means a reference to section 480(3)(a) (i) These provisions set out what the effects a court order confirming a merger will have These provisions apply to a SAP by virtue of section 472(2) 26

27 SAP prescribed effects cont d Section 480(3) provides that by operation of law, for example: all assets and liabilities transfer the transfer companies are dissolved all legal proceedings continue in the name of the successor company contracts, agreements and instruments continue in the name of the successor company all money due, owing or payable by transferor company become obligations of the successor company 27

28 Court approval procedure Subject to some exceptions, a special resolution required Directors under a statutory obligation to advise members and directors of successor company of any changes to the assets and liabilities between the date of the CDT and the general meeting Purchase of minority shares Protection of creditors Holders of securities 28

29 Court approval procedure The court may make an order hence its discretionary Merger effective from the date the court appoints The effects of the merger Section 480(3)(a)-(i) Registration of title to assets by the successor company keepers of registers Property Registration Authority 29

30 Court approval procedure Certified copy of the court order sent to the Registrar by an officer of the court The Registrar shall: register the certified copy of the order and register the dissolution of the transferor company or companies; and within 14 days after the date of that delivery publish in the CRO Gazette the fact that a copy of an order of the court has been received 30

31 Liability of directors Both civil and/or criminal sanctions exist Civil misconduct untrue statement (defence) Re SAP - directors may be personally liable where they make a declaration without having reasonable grounds for the opinion as to the company s solvency 31

32 Liability of directors cont d Criminal untrue statement (defence) Category 2 offence: on summary conviction 5,000 fine or imprisonment for a term not exceeding 12 months or both on conviction or indictment a fine up to 50,000 or imprisonment for a term not exceeding 5 years or both 32

33 Key Points and Issues SAP v the Court approval procedure: circumstances will dictate view that SAP best suited to a merger by absorption SAP less complex and more efficient from a cost and time perspective court greater credibility declaration of solvency potential personal liability for directors Registration of title of properties using the SAP procedure Employees TUPE applies Non Irish law governed contracts Personal Rights - Scheme of Arrangement (In re Citi Hedge Fund Services (Ireland) Limited [2013] IEHC 287) 33

34 Thank you Liam Brazil Partner Mason Hayes & Curran e: t:

35 Merger Accounting Kevin Foley, Audit & Assurance Partner Grant Thornton

36 Merger accounting Overview June Grant Thornton Ireland. All rights reserved.

37 Domestic mergers Part 9, Ch 3 of Companies Act sections (Part 17 of Ch 9 re PLCs) FRS 102 s IFRS no specific guidance on common control combinations; therefore Predecessor value method; or Acquisition method (IFRS 3) 2017 Grant Thornton Ireland. All rights reserved.

38 Accounting requirements No fair value adjustment Results included from start of accounting period; prior period is restated Difference between the nominal value of the shares issued plus the FV of any other consideration given, and the nominal value of the shares received in exchange recognised in reserves and via SOCIE 2017 Grant Thornton Ireland. All rights reserved.

39 Accounting disclosures For each combination: Names of combining entities The fact that merger accounting has been adopted Date of combination Accounting policy choice 2017 Grant Thornton Ireland. All rights reserved.

40 Example Company A ( m) Company B ( m) PPE Tr debtors Due from B Cash Tr creditors Due to A Share cap Share prem SH funds brought forward Profit for 3 months to March X Cap redemp. reserve Companies both have year ended 31 December 20X1. The date of merger is 31 March 20X2 for all examples. Assume all shares have 1 nominal value A has 1m shares issued and B has 700k issued Grant Thornton Ireland. All rights reserved.

41 Method 1 Merger by acquisition A acquires B by issuing shares to members of B No cash payment 2 1 shares in A for each 1 share in B are issued to members of B 2017 Grant Thornton Ireland. All rights reserved.

42 Method 1 Merger by acquisition Company A ( m) Company B ( m) Merger adjustment Company AB ( m) At 31 March X2 At 31 March X2 At 31 March X2 PPE Tr debtors Due from B Cash Tr creditors Due to A Share cap Share prem SH funds brought forward Profit for 3 months to March X Cap redemp. reserve Merger reserve Grant Thornton Ireland. All rights reserved.

43 Method 2 Merger by absorption B is the wholly owned subsidiary of A A absorbs B No shares issued 2017 Grant Thornton Ireland. All rights reserved.

44 Method 2 Merger by absorption Company A ( m) Company B ( m) Merger adjustment Company AB ( m) At 31 March X2 At 31 March X2 At 31 March X2 PPE Tr debtors Due from B Cash Tr creditors Due to A Share cap Share prem SH funds brought forward Profit for 3 months to March X Cap redemp. reserve Merger reserve Grant Thornton Ireland. All rights reserved.

45 Method 3 Merger by formation NewCo is created NewCo issues shares in exchange for the assets and liabilities of both A and B 1 share in NewCo issued in exchange for each share in A or B No cash payment 2017 Grant Thornton Ireland. All rights reserved.

46 Method 3 Merger by formation Company A ( m) Company B ( m) Merger adjustment NewCo ( m) At 31 March X2 At 31 March X2 At 31 March X2 PPE Tr debtors Due from B Cash Tr creditors Due to A Share cap Share prem SH funds brought forward Profit for 3 months to March X Cap redemp. reserve Merger reserve Grant Thornton Ireland. All rights reserved.

47 Tax Issues Maura Dineen, Tax Partner Mason Hayes & Curran

48 Merger by absorption Company B Successor company Assets and liabilities 100% of shares held by Company B Company A Transferor company Company A transfers all its assets and liabilities to Company B. No issue of shares as consideration as Company B is sole shareholder in Company A. 48

49 Merger = transfer of assets and liabilities Like any asset purchase agreement/business transfer agreement No tax legislation for domestic merger Analyse assets transferring 49

50 Tax Implications Capital Gains Tax transferor company shareholder successor company Stamp duty operation of law? end of taxable period Corporation Tax payment dates capital allowances/losses 50

51 Tax Implications VAT Transfer of business relief Payroll Revenue confirmation no P45 s Practical Issues filing/paye any rulings? Revenue clearances? 51

52 Thank you Maura Dineen Partner Mason Hayes & Curran e: t: