In last two parts of “Merger & Acquisition as per the UAE laws” series, we shed the light on the process of merging of any type of companies except public joint stock company, please check out The laws of Mergers & Acquisitions in the UAE - Part 1 , then we discussed some of the process of merging public joint stock companies, kindly go over The laws of Mergers & Acquisitions in the UAE - Part 2 to be in the loop!
Today in “Part -3” we will take you through the rest of the process of merging public joint stock companies as per Securities and Commodities Authority “SCA” board of directors’ decision.
What is the evaluation phase and completion of the merger?
As previously mentioned, the companies seeking to merge shall apply for merger signed by their representatives to SCA pursuant to the forms and technical requirements approved by the SCA.
During the application stage SCA at the expense of the companies seeking to merge, may appoint specialist experts and assign a specialist technical entity to review the asset valuation report of the companies seeking to merge to determine how to evaluate their assets and their fair value on the date of the merger. Once the technical entity completes the evaluation of the assets of the companies seeking to merge, it shall notify SCA, the competent bodies and the companies seeking to merge of the evaluation result. Then the boards of directors of the companies seeking to merge shall approve the result of the evaluation prepared by the technical entity by a letter signed by their representatives and addressed to SCA. In case of objection, the evaluation shall be repeated at the expense of the objecting party by another technical entity to be named by SCA.
The companies seeking to merge shall apply to SCA to hold the general assembly and shall provide SCA with a copy of draft invitation for the general assemblies of the companies seeking to merge to issue a special resolution amending the memorandum of association. The invitation for the general assembly to consider the merger shall include an agenda that must contain the following:
- A copy of the merger contract or summary thereof which shall clearly indicate that any one or more shareholders holding not less than (20%) of the capital of the company seeking to merge and oppose the merger shall have the right to challenge it before the competent court within thirty (30) days from the date of approving the merger contract by the general assembly.
- The draft articles of association of the merging company or the new company arising from the merger.
- The evaluation of the companies seeking to merge.
Finally, the general assemblies of the companies seeking to merge shall issue a special resolution approving the merger and proceeding with the final procedures to execute the merger.
Is there an obligation to notify creditors?
Each merging or merged company shall apply to SCA to approve notifying its creditors within ten (10) days from the date of approval on the merger by the general assembly. Such notice shall meet the following conditions:
- It shall indicate that the company’s intent is to merge with one or more specific companies.
- It shall be sent in writing to every creditor of the company notifying them of the merger.
- It shall be published in two daily local newspapers issued within the State; at least one of them is issued in Arabic.
- It shall state that any of the creditors of the merging and merged company/companies, holders of loan bonds and sukuks, and any person with an interest shall have the right to object to the merger. However, such objection must meet the following conditions:
- It shall be submitted within (30) days from the date of receiving the notice.
- It shall be submitted to the head office of the company and a copy thereof shall be submitted to SCA.
- The objecting party shall specifically indicate the subject and reasons of his objection as well as the damages he claims to have sustained because of the merger.
The company shall respond to the creditor’s objection within (30) days from the date of receiving the objection and it shall suspend all the merger procedures during such period. In case the objection is rejected or not addressed during such period, the objecting party may address the competent court to issue an order to suspend the merger. The merger procedures may not be suspended unless by a court order.
Upon receiving an application to suspend the merger, if it is evident to the court that the merger would unduly compromise the applicant’s interests, it may issue an order to suspend the merger subject to any other conditions it sees fit.
The merger shall remain suspended unless the objecting party withdraws the objection, or if the objection is rejected by the court by an irrevocable ruling, or the company repays the debt if it is current or provides enough guarantees of repayment if the debt is deferred.
It is worth mentioning that, if the merger of the company is not challenged during the 30 days period, this shall be deemed as implicit acceptance of the merger decision.
In the event no objection is received from the creditors or shareholders or if their objection is settled amicably or by the court, the company shall perform the following actions:
- If the merger is by amalgamation:
Apply to SCA to issue a certificate announcing the approval of amendment of the articles of association, including the increase of the merging company’s capital. The increased shares in the merging company shall be distributed to the shareholders of the merged companies on a pro rata basis according to the percentage of shares they hold in its capital. Then, the merging company shall address the department of economic development and the registrar within five (5) days to register the decision of the increase of capital and take actions to publish the decision of the capital increase in the official gazette and to register the decision in the commercial register. Afterwards, the department of economic development shall annotate the elapse of the merged companies, de-register them from the commercial register, and inform SCA of such actions. In turn, SCA shall de-register the merged shareholding companies from its records and notify the concerned market to de-list the shares of such companies, as the case may be.
- If the merger is by combination:
A decision shall be issued to incorporate a new company arising from the merger by combination. The capital shares of the new company arising from the merger shall be distributed to the shareholders of the merged companies. The department of economic development shall annotate the elapse of the merged companies, de-register them from the commercial register, and inform SCA of such actions. In turn, SCA shall de-register the merged shareholding companies from its records and notify the concerned market to de-list their shares, as the case may be. The representatives of the merged companies shall apply to SCA to hold a constituent general assembly for the shareholders of the new company arising from the merger to elect its board of directors, appoint the auditors of the new company, and approve its opening financial statements.
If the new company is a public shareholding company, it shall take an action after the merger to publish the decision of incorporation along with the articles of association in the official gazette and register the company with the registrar and SCA, in addition to listing the company on the market.
Thus, to sum up in order to conduct a merger there are two ways, first by amalgamation while the other is by combination and regardless of the way you wish to apply the most important thing in order to finalize your merger is to properly obtain the board of directors and shareholders approval on the merger and to notify SCA and other concerned governmental entities such as department of economic development.
Now that we’re aware of the merger process for all types of companies, stay tuned for the next series of articles where we will be highlighting the Acquisitions process in the UAE.
For further assistance or information regarding M&A please find out how our experts at Al Safar & Partners can help. Call +971 4 4221944 or email reception@alsafarpartners.com - www.alsafarpartners.com to get started.