Jersey Company Law Series: Mergers - which entities, the process and the effect

KEY TAKEAWAYS

• Eligibility to merge

• Statutory process

• Regulatory treatment and merger completion

The Companies (Jersey) Law 1991, as amended, (the "Law") provides a modern, simple and flexible merger regime for relevant companies and other entities, whilst also protecting shareholder and creditor interests.

Put simply, a merger results in two or more merging entities combining to become a single merged entity, with all the assets and liabilities of the merging entities becoming the assets and liabilities of the single merged entity on completion of the merger. This can make mergers an attractive option when structuring deals and mergers are often used as alternatives to conventional company acquisitions, takeovers or schemes of arrangement

Which entities are able to merge?

The Law provides that all "relevant Jersey companies" are capable of mergers. Broadly speaking, this includes all Jersey incorporated companies which are not:

• cell companies or cells;

• companies with unlimited shares; or

• companies with guarantor members.

Relevant Jersey companies may merge with one or more:

• other relevant Jersey companies;

• other Jersey incorporated bodies (if permitted by the legislation under which that body was formed); or

• foreign incorporated entities (if permitted by the laws of their existing jurisdiction and not designated as "excluded bodies").

The surviving merged entity

The merger process will result in a single remaining entity, which can either be (a) a "survivor body" if one of the merging entities subsumes all the others and continues in existence as the single merged entity on completion of the merger; or (b) a "new body" if all of the merging entities cease to exist and a new entity is created by the merger.

The single remaining merged entity can either be (a) a Jersey entity; or (b) in the case of a cross-border merger, an overseas entity incorporated in the same jurisdiction as one of the merging entities.

The merger process

The process for approving and effecting a merger generally involves (amongst other things) obtaining board and shareholder consent, giving statements as to the merging entities' solvency, in most cases the approval of a merger agreement and the giving of notice to creditors.

In summary, the process includes the following steps, prior to submission of a merger application:

• the directors of each merging company must pass a resolution that, in the opinion of the directors voting for the resolution, the merger is in the best interests of the company and provide a Solvency Statement (as defined below);

• save for certain internal group mergers (which benefit from a simplified statutory process and do not require a written merger agreement), each merging company must enter into a written merger agreement setting out the terms and means of effecting the merger of the merger, including the details of the merged body and any arrangements to complete the merger;

• the merger agreement must be approved by a special resolution of the shareholders of each merging company (and where there is more than one class of shareholder, by a special resolution of each class). For internal group mergers which do not require a written merger agreement, a special resolution of the shareholders of each merging company will be required to approve the merger; and

• within 21 days of the approval of the merger by the shareholders, written notice of the intention to merge must be sent to all creditors who have a claim against the company exceeding £5,000 and details of the proposed merger must also be published as a newspaper advertisement in Jersey.

Solvency Statement

The directors who authorise the merger must make a statement (a "Solvency Statement") that they have formed the opinion that:

• immediately following the date of the merger, the company will be able to discharge its liabilities as they fall due; and

• having regard to (i) the prospects of the company and to the intentions of the directors with respect to the management of the company's business and (ii) the amount and character of the financial resources that will in their view be available to the company, the company will be able to:

• continue to carry on business; and

• discharge its liabilities as they fall due,

until the first to occur of the expiry of the period of 12 months immediately following the date of the merger, or the company is wound up on a solvent basis.

A director who makes a Solvency Statement without having reasonable grounds for the opinion expressed in it is guilty of an offence and, upon conviction, is liable to a fine, imprisonment for up to two years or both.

If any of the merging entities are insolvent, Royal Court approval is required in order to protect the interests of any creditors of the merging entities.

Are any regulatory approvals required to complete the merger?

Mergers between Jersey companies involve a joint application by the merging companies to the Jersey Registrar of Companies.

Cross-border mergers or mergers involving any bodies other than Jersey companies must also be approved by the Jersey Financial Services Commission (the "JFSC"), who will have particular regard to the interests of any creditors, the public and the reputation of Jersey.

In considering a cross-border merger application, the JFSC will require (amongst other things) evidence that:

• the laws of the jurisdiction of incorporation of each overseas body do not prohibit the merger;

• any required authorisations in respect of such overseas body have been given; and

• the merger would not be unfairly prejudicial to the interests of any creditor of any of the merging bodies.

Completion and effect of merger

On the completion of a merger, as a matter of Jersey law:

• the merging bodies are merged and continue as one merged body (being either the survivor body or the new body, as applicable); and

• any merging Jersey incorporated body (including a company) that is not a survivor body ceases to be incorporated.

Where the merged body is incorporated in Jersey, all assets and liabilities of each merging body transfer to the merged body so that:

• all property and rights to which each merging body was entitled immediately before completion of the merger become the property and rights of the merged body;

• the merged body becomes subject to all criminal and civil liabilities, and all contracts, debts and other obligations, to which each of the merging bodies was subject immediately before completion of the merger; and

• all legal proceedings, which were pending by or against any of the merging bodies before completion of the merger can be continued by or against the merged body.

Where the merged body is an overseas body, the JFSC, in granting approval of the merger, will have been satisfied that the relevant jurisdiction's laws will provide for an equivalent result.

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