Amalgamation

Amalgamation refers to the union of two or more incorporated companies. The resultant amalgamated company assumes the assets and liabilities of each company that has combined. The amalgamation process whereby the rights, assets, liabilities, privileges and obligations of the amalgamating companies are transferred to and vested in the amalgamated company, is effected by the operation of law.

Such amalgamations operated by law does not require the sanction of the courts. The amalgamated company could either be a new one or an ongoing one, whereby one or more companies will combine into an existing company, and continue as an ongoing entity. The shareholders of the amalgamating company will become the shareholders of the amalgamated company. The Companies Act governs the amalgamation process of two or more incorporated companies. (sections 215a-h).

Types of Amalgamation

There are two schemes of amalgamation:

Standard form Amalgamation: In this scheme, any two or more companies may combine and continue as one entity.
Short form Amalgamation: This scheme is shorter but this is applicable for the amalgamation between a company and one or more of its wholly-owned subsidiaries; or two or more wholly owned subsidiaries of the same parent.

In both the schemes, the amalgamating companies can choose between forming a new company after amalgamation or have one of the amalgamating company as the amalgamated company.

The process of Amalgamation

Several procedural steps need to be completed by the amalgamating companies for the successful consolidation. The following is an overview of the procedures under the Standard Scheme and Short-Form Scheme.

Short Form Amalgamation

Amalgamation Proposal

All amalgamating companies are required to prepare a proposal for amalgamation that primarily sets out the considerations.

the terms and conditions of the proposed amalgamation;
the proposed share structure of the resulting company;
the consideration that the shareholders of an amalgamating company are to receive if their shares are not to be converted into shares of the amalgamated company;
a copy of the proposed memorandum of the amalgamated company; and
the details of any other payment to be made to any member or director of an amalgamating company.

The Board

The board must pass a resolution to convene a general meeting of the shareholders to pass a special resolution approving the Amalgamation Proposal. The directors must serve a written notice to the secured creditors about the proposed amalgamation and must produce a solvency statement in the form of a statutory declaration.

The purpose of the statement is to assure the creditors the ability of the amalgamated company to pay back the debts within 12 months immediately after the effective date of amalgamation and the assets of the amalgamated company will outweigh its liabilities.

The directors who endorse the statement must declare that the company has passed the tests of solvency and the grounds for their approval. Such notice and declaration must be made at least 21 days before the date of the general meeting of the shareholders.

The Shareholders

The shareholders of the amalgamating companies must pass a special resolution approving the Amalgamation Proposal that confirms the following:

The shares of each amalgamating company will be cancelled without any payment or any other consideration. However, this is not applicable for amalgamation where one of the amalgamating company would become the amalgamated company. In such cases, the shares of the amalgamating company that would become the amalgamated company would remain intact.
The memorandum of the amalgamated company will remain unchanged as the amalgamating companies;
the directors of the amalgamating companies are satisfied with the solvency of the companies.
the directors of the amalgamated company are identified in the special resolution.

ACRA Authorisation

After the amalgamation proposal is approved by the governing boards and members of the amalgamating companies, an application must be filed with the Registrar in the prescribed form and with the following details along with the prescribed fee.

the approved Amalgamation Proposals
a declaration signed by the directors of each amalgamating company stating that the amalgamation has been approved in accordance with the Act, and
the memorandum of the amalgamating company
where the amalgamated company is a new company, or the name is changed, then the name and proof of reservation of the same

ACRA will issue a notice of amalgamation, and where applicable notice of incorporation will also be issued. The date on which the amalgamation come into effect will be mentioned in the notice. With the coming into effect of amalgamation all assets, liabilities, obligation and rights will be transferred to the amalgamated company. All other provisions in the Amalgamation Proposal will take effect upon the effective date of amalgamation.

Standard Form Amalgamation

Although similar to the Short Form scheme, the Standard Form scheme is relatively elaborate involving more steps to ensure that the rights of minority shareholders are protected because the amalgamation is between two or more unrelated entities. The additional requirements from each element of the entities as discussed under the Short Form Amalgamation are outlined below.

The Board

The board must pass a resolution stating that the amalgamation is proposed in the best interest of the company and its shareholders and the directors who favour the resolution must sign a declaration stating the grounds for that opinion.

Besides sending the Amalgamation Proposal, the declaration of solvency and the above-stated declaration should also be sent to every shareholder 21days before the general meeting. The directors must also send a statement of the directors’ material interest, if any, and other relevant information that is necessary to comprehend the implications of the proposed amalgamation.

In addition, at least 21 days prior to the general meeting, every creditor of the company must be notified about the proposed amalgamation and a copy of the Amalgamation Proposal. Furthermore, a notice of the proposed amalgamation must be published in at least one local English daily, and the purpose is to inform all shareholders and creditors of the amalgamating companies, of their right to inspect a copy of the Amalgamation Proposal.

Minority Shareholders

The principal purpose of the Standard Form is to protect the minority shareholders’ interest. If the memorandum of an amalgamating company contains a clause specifying that the rights of a specific class of shareholders can be altered only with the stipulated percentage of votes approving the amendment, and if the Amalgamation Proposal involves an alteration or elimination of the class of shareholders in the Amalgamated company then the consent of such class of shareholders must be obtained.

Effects of Amalgamation

the amalgamated company shall have the name specified in the amalgamation proposal
all the property, rights and privileges of each of the amalgamating companies shall be transferred to and vested in the amalgamated company
all the liabilities and obligations of each of the amalgamating companies shall be transferred to and become the liabilities and obligations of the amalgamated company
all legal proceedings pending by or against any of the amalgamating company may be continued by or against the amalgamated company
any conviction, ruling, order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company
the shares and rights of the members in the amalgamating companies shall be converted into the shares and rights as provided for in the amalgamation proposal
employees of each of the amalgamating companies shall continue as the employees of the amalgamated company. The amalgamation will not lead to termination of the employment contract instead, like all other contracts and obligations, shall continue to be effective as if the contract was made between the amalgamated company and the employee unless there is a clause providing an option of terminating the contract as a result of a change in control.

Key Considerations

Before commencing the process of amalgamation, the amalgamating companies should consider its impact on their respective stakeholder groups, namely clients, suppliers, partners, employees and the shareholders. After assessing the impact, the proposed amalgamation should only be pursued if it brings substantial benefits, involves minimum negative impact that can be potentially mitigated by undertaking specific measures.

The amalgamating companies should consider the tax implications on the amalgamated company – whether it would increase or minimise its exposure to tax, benefits from concessions and waivers and other tax advantages and risks.

For more on tax obligations for businesses, rates and requirements, read our article on corporate tax in Singapore.

The amalgamating companies should consider if the amalgamation resulting in a new company with a new name, will erode the brand value and customer base that each of the amalgamating company had built over the years. Likewise, instead of retaining a brand name that has attracted disrepute or controversies, embracing new brand and identity may help them to erase the bad reputation.

The culture of the amalgamating companies must be evaluated and checked for competencies, and where there are potential conflicts identified, proper measures must be planned to manage the change.

The amalgamating companies should diligently scrutinise the implications of the liabilities, pending proceedings, or impending verdicts of the other companies entering the amalgamation.

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