Merger of companies (III). Reverse merger of companies

This article is a continuation of the article “The merger of companies. General aspects” and aims to analyze one of the so-called “Special Mergers” regulated in Section 8 of Title II of Law 3/2009, on structural modifications (LME), specifically the so-called reverse mergers, in which the absorbed company directly or indirectly owns the shares or interests of the absorbing company.These types of mergers are regulated by Article 52 of the LME, which establishes that: “The provisions for the absorption of wholly-owned companies shall apply, to the extent appropriate, to the merger, in any of its classes, of companies wholly owned directly or indirectly by the same shareholder, as well as to mergers by absorption when the absorbed company directly or indirectly holds all the shares or interests of the absorbing company.”

The exceptions applicable to mergers of wholly-owned companies were analyzed in the article “Mergers of Companies (II). Reverse Merger of Companies.” Among them is the lack of approval of the merger by the general meeting of the absorbed company, which, a priori, could be understood to be applicable to the case studied, in accordance with the provisions of the aforementioned article.

However, a resolution of the General Directorate of Registries and Notaries dated March 1, 2019, recognizes the need for a resolution from the general meeting of the absorbed company in reverse company mergers.

As we explained in the previous article, the reason that justifies the unnecessary resolution of the general meeting of the absorbed company, in mergers by absorption of wholly-owned companies, is that all the shares or participations are owned by the absorbing company and, therefore, all the voting rights are exercised by the absorbing company itself, whose shareholders hold the only interests to be considered in the operation.

In this regard, the aforementioned DGRN Resolution establishes that: “Similarly, in the event of a reverse merger, the shareholders of the company to be dissolved, the absorbed company, must be called to speak at a general meeting because it is their interests as shareholders that are being discussed and which, eventually, are transformed into the attribution of shares or participations in the absorbing company. It is not acceptable to assert that since there is no change in their participation in the capital (which is, moreover, mandatory under Article 24.1 of Law 3/2009, of April 3), their pronouncement at a general meeting is not required. On the contrary, it is precisely the attribution of shares or participations in the absorbing company (whose statutory or legal regime may be very different from that of the absorbed company) that justifies the need for the general meeting to allow the shareholders to speak in defense of their interests, given the limitations that exist for the shareholders after the registration of the merger (Article 47.1 of Law 3/2009, of April 3). 3/2009, of April 3).”

Therefore, all this leads to the conclusion that, although there are certain requirements specific to the merger that can be eliminated in the case of a reverse merger (i.e. capital increase of the acquiring company, the report of an independent expert, etc.), there are others, such as the approval by the General Meeting of the acquired company that, where applicable, must be met.

However, the investment makes approval by the acquiring company’s general meeting unnecessary, for the reasons explained above. However, it is necessary for the company’s general meeting to approve the merger, as the interests of its shareholders are affected by the structural reform.