Merger can occur between two or more companies with the same or different business objectives due to business, financial or management strategies. This article briefly discusses the provisions of law, in particular Law on Commercial Enterprises (LCE), that govern the merger of companies in Cambodia. How is merger taken place? What are legal requirements or rules for merger?
1. Types or forms of merger
Merger can be done in two forms. Firstly, two or more companies can be merged into one company. For example, company X and company Y can be merged into company X or company Y. Secondly, two or more companies can be merged into another new company. For example, company X and company Y can be merged into a new company called Z.
In two examples above, the dissolved company is called the “original company” or “constituent company” and the company that continues doing business is called the “surviving company”. The constituent company will lose its legal personality (legal capacity to acquire rights and assume obligations) from the date the Ministry of Commerce issues a certificate of merger to the surviving company. (Article 241, LCE)
2. What are the requirements or rules for merger?
2.1. Merger agreement
Merger of two or more companies requires a merger agreement made by those companies. Pursuant to Article 243 of Law on Commercial Enterprises, the merger agreement must state the following:
a. key terms and conditions of merger;
b. articles of incorporation of the surviving company in charge of continuing to do business;
c. methods for converting shares of each type of the constituent company into shares or other securities of the surviving company;
d. statement of cash, securities, or other proprietary rights that the holders are entitled to in the merger if any of the shares of the constituent company are not converted into shares of the surviving company;
e. other information that the holders of each class of shares need to know as basis for making decision to vote to approve for a merger;
f. details of the coordination or arrangements necessary to perfect the merger and to provide for the subsequent managements and operations of the surviving company.
2.2. Approval of the merger agreement by the board of directors of the company requesting for the merger:
Pursuant to Article 242 of the Law on Commercial Enterprises, the board of directors of each company that proposes to merger must approve the merger agreement. Except as provided in these companies’ articles of incorporation, this approval must be made by an absolute majority of all directors.
2.3. Approval of the merger agreement by the shareholders of the companies requesting for the merger:
Pursuant to Article 244 of the Law on Commercial Enterprises, after receiving a decision or approval from the board of directors of each constituent company, the shareholders of the surviving company shall notify the shareholders of the companies requesting for the merger who are entitled to vote on the merger the following information:
a. within 30 days after the merger agreement, the board of directors of each constituent company must convene a general meeting of shareholders to vote to approve on the merger agreement;
b. the notice must be accompanied by a copy of the merger agreement.
c. each constituent company must provide notice of the shareholders’ meeting at least 20 days in advance.
The merger must be approved by a special resolution of two-thirds of the shareholders of each constituent company. (Article 245, LCE) Although the Law on Commercial Enterprises stipulates that the merger agreement must be decided by the board of directors of each constituent company before submitting to the shareholders for decision, in practice there might be cases where signing this merger agreement must be made after approval from the shareholders or at the same time with approval of the board of directors.
2.4. Filing merger documents with Ministry of Commerce by the director of the surviving company:
According to Article 247 of the Law on Commercial Enterprises, the directors of the surviving company who continues to do business must file the following documents with the Ministry of Commerce:
a. the merger agreement;
b. resolutions of board of directors and shareholders of each constituent company approving the merger agreement;
c. articles of incorporation of the surviving company;
d. declaration of the directors or managers of each constituent company made at the request of the Director of the Companies of the Ministry of Commerce. The said declaration must affirm or reasonably confirm that:
- each constituent company and surviving company are able to repay their debts on time;
- the total resources of the surviving company must not be less than the total amount of debt owed and less than the registered capital of the constituent company.
- no creditor is harmed by the merger;
- a written notice is given to all creditors of the constituent companies and no creditor has made a valid and reasonable objection to the merger.
3. Effect of merger
Pursuant to Article 248 of the Law on Commercial Enterprises, upon receipt of the articles of merger, the Ministry of Commerce must issue a certificate confirming the merger and from the date stated on this certificate:
a. the merger of the constituent companies and their continuance as one company become effective;
b. the ownership of each constituent companies will become ownership of the surviving company;
c. the surviving company that continues to do business is responsible for the obligations of each constituent company;
d. any civil, criminal, or administrative matters involving any constituent company remains effective in connection with the surviving company;
e. the article on merger must be considered as the articles of incorporation of the surviving company and the certificate of merger company must be considered as the certificate of incorporation of the surviving company.
In conclusion, merger of two or more companies needs to have merger agreement to be approved by board of directors and shareholders of the constituent companies. Merger agreement, resolutions of board of directors and shareholders, articles of merger, and declaration (of directors or managers of the constituent companies confirming no harm on creditors) must be filed with the Ministry of Commerce. The effect of merger is that the surviving company acquires rights and assume obligations of the constituent companies.
This article is not legal opinion or legal advice.