An introduction to company mergers in Hong Kong
Generally speaking from a corporate law perspective a merger or amalgamation is a legal process under which the assets and liabilities of two or more companies merge and are brought under one of the original companies or a newly incorporated company (as the case may be).
Mergers of companies were rarely implemented in Hong Kong before the New Companies Ordinance came into effect in March 2014 due to the complex court-sanctioned procedure involved, high costs, and the court’s generally restrictive approach.
The new Companies Ordinance has introduced a new court-free statutory amalgamation procedure in respect of wholly-owned intra-group Hong Kong companies (ss.678–686), based on New Zealand provisions. Specifically, under the new regime court approval is no longer required for vertical amalgamation (a holding company and its wholly-owned subsidiaries) and horizontal amalgamation (involving wholly-owned subsidiaries of a company). The relevant procedure is relatively straight forward and mostly requires the passing of certain special resolutions at the all amalgamating companies’ level to approve the transaction, the issuing of directors’ solvency statements certifying that all the companies involved in the amalgamation in the opinion of the relevant directors are solvent, and the circulation of notices to inform the creditors/public of the proposed amalgamation.
Protections for creditors and members
Certain protections for creditors and members are provided such as the requirement to give a written notice to each secured creditor, if any, for consent, and, as mentioned above, to circulate a public notice. Moreover any member, creditor or other person to whom an amalgamating company is under an obligation have the right to file with the Court an objection to a proposed amalgamation, and the Court may subsequently make an order it thinks fit in relation to the amalgamation proposal if it is satisfied that the amalgamation would be unfairly prejudicial to such applicant.
As soon as practicable following the submission of the registration documents, subject to the above, the Registrar must issue a certificate of amalgamation which must specify the relevant effective date.
From a legal standpoint, once the amalgamation is in effect:-
- Each amalgamating company ceases to exist as an entity separate from the amalgamated company (i.e. the amalgamating companies will continue as one company)
- The amalgamated company succeeds to all the property, rights and privileges, and assumes all liabilities and obligations of each amalgamating company
- (i) Any proceedings pending by or against an amalgamating company may be continued by or against the amalgamated company; (ii) any order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and (iii) any agreement entered into by an amalgamating company may be enforced by or against the amalgamated company unless otherwise provided in the agreement.
Before proceeding with the amalgamation it is advisable to check whether any amalgamating company has entered into any contract still in force which contains restrictions in respect of a merger/amalgamation with other companies. Likewise, if any of the amalgamating companies is the registered owner of any Intellectual Property Rights or other assets overseas it is advisable to check with local advisors to confirm whether the local authorities do recognise the amalgamation effect or if any additional procedures need to be carried out locally to effect the merger.
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.