Merger
A merger is a restructuring in which one or more existing companies are completely absorbed by another (whether or not already existing) company. The new WVV contains very extensive rules on mergers and distinguishes two forms of merger: merger by acquisition and merger by incorporation.
1. Merger by acquisition
Article 12:2 WVV defines a merger by acquisition as follows: “the legal act whereby the entire assets and liabilities of one or more companies, both rights and obligations, are transferred to another company as a result of dissolution without liquidation in exchange for the issue of shares in the acquiring company to the partners or shareholders of the dissolved company or companies, possibly with a cash payment that may not exceed one tenth of the nominal value or, in the absence of a nominal value, of the fractional value of the shares issued”. In other words, the entire assets of Company A are transferred to Company B. In exchange, Company B issues shares to the shareholders of Company A. Subsequently, Company A is dissolved without liquidation.
2. Merger by incorporation In addition, article 12:3 WVV defines a merger by incorporation of a new company: “as the legal act whereby the entire assets and liabilities of various companies are transferred to a new company formed by them as a result of dissolution without liquidation in exchange for the issue of shares in the new company to the partners or shareholders of the dissolved companies, possibly with a cash payment not exceeding one tenth of the nominal value or, in the absence of a nominal value, of the fractional value of the shares issued”.
In this context, company A and company B contribute their assets to a new company C. Company C issues shares to the shareholders of companies A and B. Companies A and B are dissolved without liquidation.
In practice, a merger has become a standard transaction, especially within a group. A merger has become the way to simplify a group structure because it is a very efficient, taxfriendly way to remove certain companies from a group. Mergers within a group are therefore very often done to control costs, to liquidate a company and thus remove it from the structure. In
practice, there are also mergers between independent parties, but these are rather rare. In this context, one will be more inclined to opt for a share takeover.
Transactions treated as mergers or divisions Several transactions are assimilated to a merger or a demerger. The WVV distinguishes three different transactions that are equated with a merger or demerger: the silent merger, the silent demerger and the partial demerger.
1. Silent merger The tax-free merger or silent merger is equated with a merger by acquisition by article 12:7 of the WVV. This is the legal act whereby the entire assets and liabilities of one or more companies, both rights and obligations, are transferred to another company as a result of dissolution without liquidation, when all their shares and other voting securities are held either by that other company, or by intermediaries of that company, or by those intermediaries and that company. This technique is relatively common in the context of cleaning up within a group. It is de facto a mother-daughter merger in which the parent company takes over the daughter.
2. Silent demerger Unlike the silent merger, the silent demerger was not yet anchored in the old W.Venn. With the introduction of the WVV, the silent demerger is now legally recognised in article 12:8, 2° WVV. This provision equates a demerger with: “the legal act whereby part of the assets and liabilities of a company are transferred, without being dissolved, to another company that already owns all of its shares and other voting securities”. This is also a situation in which a subsidiary hived off part of its assets for the benefit of its mother, who holds all the shares in that subsidiary. In other words, this operation is mainly aimed at intra-group restructuring. The rules of the ordinary demerger should be applied to the silent demerger insofar as they are compatible with the characteristics of the latter. There is no need to issue new shares, as the mother company is already a shareholder of all shares of the daughter.
3. Partial demerger Prior to the introduction of the WVV, the existence of the partial demerger was deduced from the enigmatic article 677 of the W.Venn. By giving a broad definition, the WVV tries to take away this legal uncertainty. From now on, the
partial demerger is characterised as a legal act whereby part of the assets and liabilities of a company are transferred, without being dissolved, to one or more existing companies or companies incorporated by them in exchange for the issue to the partners or shareholders of the transferring company of shares in the acquiring company or companies, possibly with a cash payment that may not exceed one tenth of the nominal value or, in the absence of a nominal value, of the fractional value of the shares issued.
We find the following essential characteristics of the partial demerger:
It’s the partial demergers that occur regularly in practice. The
choice for a partial demerger can be based on various grounds:
Since the above transactions are equated with a merger or demerger by the WVV, the procedure of either a merger or a demerger, respectively, will have to be followed as explained earlier.
