Statutory Merger Transactions under the Companies & Other Business Entities Act Introduction

KELVIN SABAO

A statutory merger, commonly known as an ‘amalgamation’ or ‘consolidation’ under the Companies & Other Business Entities Act (COBE Act), represents a modern, court-free business practice allowing two or more companies to merge with the approval of their shareholders.

This article explores the statutory merger procedure introduced by the COBE Act in February 2020, and its advantages and disadvantages.

Evolution and Alignment with Global Practices

Before the COBE Act, merger transactions in Zimbabwe were regulated by the Competition Act. The COBE Act brought about a statutory merger procedure, aligning Zimbabwe with international norms. Countries like the United States, France, Germany, Canada, and South Africa have already embraced similar ‘court-free’ statutory merger processes.

Entities Eligible for Statutory Mergers

According to Section 227 of the COBE Act, private, public, and cooperative companies can engage in a merger. Section 228 further specifies that mergers can involve two or more public companies or any combination, including at least one public and one private company.

The Four-Step Statutory Merger Procedure

Step 1: Drafting a Provisional Contract

Merging companies initiate the process by creating a provisional contract detailing crucial aspects, such as company details, terms of the merger, share conversion, and constitutive documents of the new company. This step establishes the foundation for the entire procedure.

Step 2: Public Notice of Proposed Merger

Merging companies are required to publish a notice of the proposed merger in the Gazette and a local newspaper, disclosing the names of the merging parties. This step ensures transparency and provides information to the public.

Step 3: Shareholder Notification and Approval

Merging companies must notify shareholders of the provisional contract, accompanied by various documents, including the contract itself, board recommendations, an independent financial adviser’s opinion, and financial statements. The majority shareholder approval triggers the right to appraisal for dissenting shareholders.

Step 4: Filing and Publication

After shareholder approval, the merged or merging companies file the merger contract with the Registrar of Companies and Other Business Entities. The merger becomes effective upon filing, and notice is published in the Gazette and a local newspaper, finalizing the process.

Advantages of the Statutory Merger Procedure

1. Efficiency in Parent-Subsidiary Mergers:The COBE Act allows a parent company to merge with its 90% owned subsidiary without board or minority shareholder approval, saving time and money.

2. Automatic Transfer of Assets and Liabilities:Upon implementation of the merger agreement, all assets, contracts, and liabilities of the merging companies transfer to the merged company by operation of law, streamlining the transfer process.

3. Avoidance of Legal Formalities: The automatic vesting of assets and liabilities eliminates the need for legal formalities associated with transfer, such as delivery or court orders.

Disadvantages of the Statutory Merger Procedure

1. Exclusion of Cross-Border Mergers:The COBE Act does not currently allow for mergers between foreign and domestic companies. To attract foreign investment, an amendment should be considered to facilitate cross-border mergers.

2. Automatic Assumption of Obligations:The surviving company automatically assumes all obligations and liabilities of the disappearing company, including debts and legal actions.

Conclusion

The introduction of the statutory merger procedure in Zimbabwe was a crucial step in aligning the country’s business laws with global standards. While the process is deemed progressive, ongoing improvements, such as facilitating cross-border mergers, will contribute to attracting foreign investment and staying in tune with evolving international business trends. As Zimbabwe positions itself as “Open for Business,” these enhancements will play a vital role in fostering a conducive business environment.

Disclaimer:

The information and opinions expressed above are for general information only. They are not intended to constitute legal or other professional advice.

Kelvin Sabao is a duly registered Legal Practitioner practising law at Titan Law. He writes in his personal capacity. He is a co-author of a book titled ‘The Directors’ Handbook in Zimbabwe’. This publication underscores his expertise and dedication to advancing the knowledge and understanding of corporate law and corporate governance in the Zimbabwean context. For more information, you can contact Kelvin via email at: sabaokelvin@gmail.com