Domestic mergers in Ireland

This guide was last updated in November 2018

Previously, the only merger regime applicable to private companies in Ireland was the EU cross-border mergers regime, transposed into Irish law by the 2008 European Communities (Cross-Border Mergers) Regulations.

There are three different types of domestic mergers under the 2014 Act:

• merger by acquisition, where a company acquires all the assets and liabilities of one or more other companies that is or are dissolved without going into liquidation in exchange for the issue to the members of that company(ies) of shares in the acquiring company, with or without any cash payment. This is the most common type of merger used between unrelated parties;
• merger by absorption, where a company, on being dissolved and without going into liquidation, transfers all of its assets and liabilities to an acquiring company that is the holder of all the shares representing the capital of the target company; and
• merger by formation of a new company, where one or more companies, on being dissolved without going into liquidation, transfers all its/their assets and liabilities to a new company that it or they form, in exchange for the issue to its/their members of shares representing the capital of the new company, with or without any cash payment.

A domestic merger must involve only Irish companies, one of which must be a private company limited by shares ('an LTD' - the most common form of Irish company) and none of which can be public limited companies.

There are two methods for implementing a domestic merger: the summary approval process (SAP) or a High Court approval process. If the SAP is used to approve a merger, the directors of each of the companies are required to make a statutory declaration (including a declaration of solvency in respect of the companies), which may result in personal liability for the directors for all debts and other liabilities of the target company or the successor company if the declaration is not made on reasonable grounds. If the directors of the companies are not willing to provide a statutory declaration, the court process for approving the merger would be required. This can be expensive and time-consuming.

A court or SAP approved merger will not be confidential, as certain filings and/or publications are required to be made with the Companies Registration Office (CRO) and in national newspapers. For a typical, SAP approved merger, only filings with the CRO are required, rather than publication in the CRO Gazette or in a daily national newspaper as is required of a court-approved merger.

Steps involved in a SAP approved merger

As the majority of mergers take the SAP approved route, a summary of the steps involved is set out below:

Due diligence: under a merger, all assets and liabilities of the target company will transfer to the acquiring company by operation of law. Because of this, usually a due diligence exercise is carried out to ascertain whether a hive-out of any assets or liabilities is required before the merger takes effect.

Common draft terms of merger: these are drawn up by the directors of each of the companies involved and approved in writing. The common draft terms of merger must include certain minimum details set out in the 2014 Act.

Waivers and notifications: in certain circumstances, the 2014 Act requires the preparation by each of the companies involved of a directors' explanatory report and an expert's report, explaining the terms and effect of the merger. However, it is possible that the requirement to have these is waived by the shareholders.

At this point, the target company should commence the TUPE consultation process (a consultation and information process with employees where the undertaking the employees are engaged with is transferring) if it has any employees, and issue relevant notifications to transferring employees.

Inspection of documents: each company must make certain documents available for inspection free of charge by any shareholder of the company at its registered office, during business hours, for a period of 30 days before the date of the passing of the unanimous written shareholders' resolution under the SAP (see below). These documents are:

• the common draft terms of merger;
• the directors' explanatory report and the expert's report, if relevant and not waived; and
• the statutory audited financial statements for the preceding three financial years of each company involved. This requirement is modified where the company has traded for less than three years, or is recently incorporated.

The inspection requirement does not apply to any company which publishes these documents free of charge on its website for a continuous period of at least two months, commencing at least 30 days before the date of the passing of the unanimous written shareholders' resolution by each company and ending at least 30 days after that date.

SAP: a unanimous written shareholders' resolution of each company, approving the merger and the common draft terms, must now be passed. This resolution must be accompanied by a statutory declaration made at a meeting of the directors of each company, along with a document known as a 'without difficulty' document prepared by the declarants:

• confirming that the common draft terms provide for such particulars of each relevant matter as will enable each of the prescribed effects of the merger (explained below) to operate without difficulty in relation to the merger; or
• specifying such particulars of each relevant matter as will enable each of those effects to operate without difficulty in relation to the merger.

Completion of the merger and dissolution of the target company: once the unanimous written shareholders' resolution of each company approving the merger and the common draft terms are each passed, the merger shall take effect on the date specified in those terms or in the 'without difficulty' document and the prescribed effects will then apply. The main prescribed effects are as follows:

• all assets and liabilities of the target company or companies are transferred to the successor company;
• in the case of the most common types of mergers, the shareholders of the target company or companies become shareholders of the successor company and any cash that has to be paid is paid;
• the target company or companies is or are dissolved;
• the successor company is substituted for the target company or companies into all pending legal proceedings involving it or them; and
• all contracts, agreements or instruments that the target company is a party to become contracts, agreements or instruments to which the successor company is a party to.