When two or more companies are combined together to achieve greater efficiencies of sale, productivity and profit it is termed as ‘merger’. This is achieved through the elimination of replica of identity, structure, equipment, staff etc and the reallocation of capital assets to increase sales and profits in the enlarged company. Part VII of the Company law of Kuwait elaborates on how a merger is possible in Kuwait and it classifies merger as ‘Acquisition’ or ‘Combination’, as per the terms mentioned therein.
In acquisition, a company can buy another company with cash, stock or a combination of the two. Another possibility, which is common in smaller deals, is for one company to acquire all the assets of another company. The absorbed Company becomes merely a shell and will eventually liquidate. In other words, a company or more may merge into another company and so the legal personality of the absorbed company disappears and its assets and liabilities move to the acquirer company, which maintains its artificial personality.
The procedures for merger by acquisition shall be as follows;
- The merged company shall issue a resolution confirming its liquidation.
- The assets of the merged company shall be evaluated in accordance to the provisions of the law and the resolution to this effect would be executed.
- A resolution for the increase of the share capital shall be made in accordance to the merged company’s assets.
- The increased share capital shall be distributed among the shareholders in proportion to the allocation of shares.
- If three years elapse from the date of incorporation of the merging company the shares shall be circulated soon after the issuance of the shares.
By the term ‘Combination’ it would mean that two or more companies merge based on an agreement whereby the merger would be on equal terms that the legal personality of both of them would disappear and their assets and liabilities would be transferred to a new company. The resolution of the merger shall be agreed by means of an agreement entered into by and amongst the parties desiring to merge in accordance to the provisions of the company policies and the Articles of Incorporation. The merger shall not be considered as final unless the approval in conformity with the structure of the newly formed company is obtained. For example, banks, financial institutions and investment companies require the approval of the Central Bank before the implementation of the resolution for the merger. Additionally, a resolution of the Ministry of Commerce & Industry shall also be issued to determine the method of evaluation of the merging company’s assets, the procedure, conditions and terms of merger.
Merger by means of combination shall be achieved by means of the following procedures;
- Each of the merged companies shall issue a resolution about the liquidation.
- The new company shall be formed in accordance to the provisions of law. However, if the newly formed company is a joint stock company, the reports of experts concerning the proportion and allocation of shares shall be considered without the need to present the matter before the Incorporation Assembly.
- The shares shall be allocated to each merged company in accordance to its capital contribution in the newly formed company.
Transparency of the merger
Merger must be announced in two dailies, official gazette and shall be enrolled in the commercial register. The resolution of the merger shall not be implemented except after three months from the date of proclamation by enrollment in the commercial register and the creditors of the merged companies shall have the right to object the merger through a registered letter, properly delivered to the company. The merger shall be ceased unless the objection is abandoned by the creditor, a final judgment from the competent court is obtained or if the company pays the debt if it falls due or arranges a guarantee for fulfillment thereof if it is deferred; if no objection is filed within the stipulated time frame the merge shall take place and the newly formed company shall acquire all the rights and liabilities of the merged companies.
Even if a company is on the verge of liquidation it can merge with another company and it is not necessary that the merger should be between two companies carrying out business of similar nature or constituted under the same legal frame work i.e., even a WLL company can merge with a Kuwait Share Holding Company.
Merger & Competition laws
Commercial law Number 68 of 1980 deals with illegal competition which does not allow illicit gain or unlawful gain. The Kuwaiti Law obligates the companies which aim to acquire assets or to establish mergers to promptly notify the body entrusted with the protection of competition. Hence, when the share reaches the rate that leads to the domination of the market it should be notified to the authorized body and the said body shall always strive to strike a balance between the advantages and disadvantages arising from the merger.
Merger does not necessitate the need to change the partner’s positions in the newly formed company and in this era of economic recession around the globe there is a great chance for financial institutions to merge, thereby enhancing their profits and competition.