International Law

STATUTORY MERGERS UNDER THE LAWS OF THE DUTCH CARIBBEAN

By Karel.Frielink

Mergers mostly within a group of companies

A statutory merger involves at least two legal entities. The law uses the terms acquiring and disappearing legal entity. The law specifies that only legal entities having the same legal form may merge, specifying that a BV (closed limited liability company) and a NV (public limited liability company) are considered to be the same. Statutory mergers are used mostly within a group of companies.

Essential for a statutory merger is that the title of all assets and liabilities of one legal entity transfer in their entirety to another legal entity. An actual transfer does not in fact take place.

A statutory merger has some additional legal consequences. Firstly, the disappearing legal entity ceases to exist. Liquidation or formal dissolution does not take place. Secondly, the shareholders of the disappearing legal entity become shareholders of the acquiring entity by operation of law. The nominal value of the shares involved depends on their shareholding and the exchange ratio. The statutory merger replaces the shares held in the disappearing legal entity with shares of the acquiring legal entity. Generally the acquiring entity issues shares.

There are exceptions to this rule, namely, if the shares of the disappearing entity are held directly or indirectly for the account of the acquiring legal entity. In this case of a parent-subsidiary merger the shares are canceled and no shares in the acquiring entity are issued. This is logical: it is not the intention of the merger that the acquiring legal entity obtains shares in its own equity, which would be the case if shares in the acquiring entity were to be issued. In the case of a sister merger it is optional whether shares in the acquiring entity are issued.

The merger process may be divided into three parts. The first is the proposal to merge. The proposal to merge must be initiated by the managing board(s) of the merging entities.

The second part concerns the decision to merge. The general meeting(s) of shareholders of the merging entities must adopt a resolution to merge, it is permitted however that the acquiring legal entity be allowed to merge by a decision of its managing board.

After completion of the second part, the statutory merger is implemented by the execution of a deed of merger before a civil law notary.  The parties to the deed of merger are the merging legal entities.

Karel Frielink
Attorney (lawyer) / Partner

Full post as published by Karel's Legal Blog on June 21, 2008 (boomark / email).