Mergers of companies (II). direct improper mergers

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).

This type of merger is characterized by the fact that the law provides for the possibility of simplifying the merger regime when certain conditions are met, primarily regarding the structure and relationship of the participating companies.

However, before analyzing this type of merger, it is important to highlight that the law provides another option for simplifying the procedure: when the merger agreement is adopted unanimously at a general meeting. In this regard, Article 42 of the LME establishes:

“Article 42. Unanimous merger agreement.

1. The merger agreement may be adopted without the need to publish or previously deposit the documents required by law and without a report from the directors on the merger project when it is adopted, in each of the companies participating in the merger, at a universal meeting and by unanimity of all partners with voting rights and, where applicable, of those who, in accordance with the law or the bylaws, could legitimately exercise that right.

2. The information rights of the workers’ representatives regarding the merger, including information on the effects it may have on employment, may not be restricted by the fact that the merger is approved at a general meeting..”

Therefore, if the merger agreement is adopted at a universal meeting and unanimously:

• It will not be necessary to publish or deposit in advance the documents required by law.
• The report of the governing body will not be necessary on the merger project.

In any case It is important to keep in mind that the right to information of employee representatives can never be violated by the failure to publish documents required by law. Therefore, documents required by law (i.e., annual accounts for the last three fiscal years, current bylaws, etc.) must be made available to employees.

Having analyzed one of the possibilities for simplifying the merger process provided for by law, which will be applied provided the requirements indicated above are met, we detail below one of the so-called special mergers, which, due to the characteristics of the companies involved in the merger, allow for further simplification of the merger process:

Direct improper merger

It is a merger in which the absorbing company is the direct owner of all the shares or interests of the absorbed companies.

The Structural Modifications Act, in its Article 49, establishes that, in these cases, the merger may be carried out without the following requirements being met:

• The inclusion in the merger project of the 2nd and 6th items of Article 31 LME, and unless it concerns intra-Community cross-border mergers, the 9th and 10th items of the aforementioned article, which are specified in the following points:
  • The type of exchange, the additional monetary compensation that would have been provided and, where applicable, the exchange procedure (article 31.2 of the LME).

In this type of merger, an exchange is not required, as it is carried out without a capital increase or the transfer of shares or interests to any party.

• • It will be no necessary to indicate the date from which the holders of the new shares or participations will have the right to participate in the company’s profits (article 31.6 LME).

The inclusion of such mention is not appropriate for the same reason indicated in the previous point.

• • Information on the valuation of the assets and liabilities of the assets of each company that is transferred to the resulting company (article 31.9 of the LME).
• The dates of the accounts of the merging companies used to establish the conditions under which the merger is carried out (article 31.10 LME).

• Reports from administrators and experts on the merger project will not be required. However, in the case of an intra-Community cross-border merger, a directors’ report would be required.

• Increase in the share capital of the acquiring company. It is not necessary to increase the share capital of the acquiring company, as this would involve the acquisition or issuance of empty shares or equity interests. This would not represent a real outlay for the company, as these assets were already included in the acquiring company’s balance sheet.
• Approval of the merger by the general meetings of the absorbed company or companies. In this case, it is understood that the will of the participating company is expressed through the agreement of the acquiring company, as the latter holds 100% of the share capital, meaning that no minority shareholder could challenge said agreement.

For these simplifications to apply, it should be noted that the unanimous merger agreement referred to above is not necessary; rather, it would be sufficient for the acquiring company to hold 100% of the shares or interests in the acquired company(ies).

However, in these cases, where the acquiring company owns 100% of the capital of the acquired company or companies, the specific provisions for mergers by unanimous agreement provided for in Article 42 of the LME may also apply, as the merger is agreed upon by the sole shareholder of the companies. In these cases, with unanimous approval of the merger and without prior notice to the General Meeting, the simplifications provided for in Article 49 of the LME may also apply, as well as those relating to the publication of the documents required by law.