LEGAL PERSPECTIVE: Acquisitions and mergers – A&Ms by Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama, Legal Counsel

As a rule, consolidation and amalgamation of companies could take place by the process of acquisition or merger. There were good examples for acquisition in many places as legally approved without affecting the trading rules governing fair competition. Consolidation by acquisition shall be effective through applying certain formalities as, the company shall first adopt a resolution for its dissolution and accordingly its non-existence as a legal entity. This is required, so as to pave the way for the new company to be incorporated. Also, the company shall take all necessary steps for the valuation of its net assets according to the provisions stipulated in the law and to be followed as in cases regarding valuation of shares in kind.

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The acquiring company should adopt a resolution for increasing its capital in line with the result of the valuation of the acquired company. That is, to increase its capital to absorb the valuation of the joining company. The increase in the capital of the acquiring company shall be distributed among the partners proportionately to their equity shareholding.

In case the stocks of the company were represented by shares and two years have expired from the incorporation of the acquiring company, these shares could be negotiated immediately after their issue. A number of shares shall be allocated to each consolidating /amalgamating company equal to its share in the capital of the new company.

There are certain legal procedures to be followed before the consolidation takes place. Such as, the consolidation becomes effective only after three months from the date of registration in the commercial register. The concerned companies, in consultation with the competent authorities, shall publish a notice to the public informing them about the consolidation. The creditors of the consolidated company may, within the said period, give their objection to the consolidation. In such instances the consolidation process shall be suspended unless the creditor waive their objection. The court, in case of dispute, could overrule the objections raised by any creditor or otherwise the company should settle the debt if it was due, or it should provide sufficient guarantees for the settlement of such debts in the future, provided that the creditors accept such arrangement.

In case no person appears during the specified period, the consolidation shall be considered final and the new company shall replace the non-existing companies in all their rights and liabilities. Suppose someone appears after the specified time, I think this should not affect the validity of the consolidation, however, the new management should settle the issues raised by him.

Normally the consolidation process takes time and the two concerned companies should discuss in details all matters regarding the goodwill of each company, all issues related to the assets and liabilities, the new business name or logo to be adopted by the new company, names of persons who are going to manage the new company and other issues necessary for the new brand entity.

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