What is Amalgamation?
An amalgamation is a statutory procedure where two or more separate corporations (the “Amalgamating Corporations”), including holding or subsidiary corporations, combine and continue as one corporation (the “Amalgamated Corporation”). The Amalgamated Corporation will have all the assets and liabilities of the amalgamating corporations. Consequently, amalgamations are a heavily utilised tool in mergers and reorganisations for both corporate and tax reasons.
The amalgamation provisions of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (the “CBCA”) are contained in Sections 181 to 186.1. The amalgamation provisions of the Ontario Business Corporations Act (“OBCA”) are contained in Sections 174 to 179.
Governed by the Same Statute
Amalgamations, by nature, are straightforward transactions, but in order to effect an amalgamation, all of the Amalgamating Corporations must be governed by the same statute. This means that one or more of the Amalgamating Corporations may have to be continued under the preferred statute prior to proceeding with the amalgamation.
Types of Amalgamation
There are two types of amalgamations that are available under the statutes:
- Short Form; and
- Long Form.
Companies meeting the requisite requirements for a short form amalgamation may take advantage of a streamlined amalgamation process. There are two types of short form amalgamations:
- Vertical Short Form Amalgamation – where a parent corporation amalgamates with one or more of its subsidiary corporations
- Horizontal Short Form Amalgamation – when at least two wholly owned subsidiary corporations of the same parent corporation amalgamate into one corporation.
Short form amalgamations are governed by Sections 184(1) and 184(2) of the CBCA and Sections 177(1) and 177(2) of the OBCA.
In a short-form amalgamation process, directors approve the amalgamation without the requirements for an amalgamation agreement and shareholder approval. However, there are two requirements that must be met for a short-form amalgamation:
- in a vertical amalgamation, the shares of each of the amalgamating subsidiary corporations must be cancelled without any repayment of capital.
- in a horizontal amalgamation, one of the amalgamating subsidiary corporations doesn’t cancel shares without capital repayment.
Companies not meeting the requirements for a short–form amalgamation must proceed with a long-form amalgamation. Companies proceeding with a long-form amalgamation must complete the following:
- enter into an amalgamation agreement;
- obtain shareholder approval for the amalgamation agreement;
- file an articles of amalgamation with the applicable regulatory body;
- file a director’s or officer’s statutory declaration for each of the Amalgamating Corporations (these are schedules to the articles of amalgamation); and
- for a CBCA amalgamation, a Form 2, Initial Registered Office Address and First Board of Directors.
The amalgamation agreement sets out the terms by which the amalgamating corporation will affect the amalgamation. It is a legally binding contract that addresses some of the following items:
- the provisions to be used in the articles of amalgamation
- the name and address of each proposed directors for the amalgamated corporation
- how shares of each amalgamating corporation will be converted into shares or other securities of the amalgamated corporation
- the proposed by-laws of the amalgamated corporation (which could be the by-laws of one of the amalgamating corporations
- A termination provision allowing the directors of an amalgamating corporation to terminate the amalgamation agreement despite shareholder approval of the proposed amalgamation
The second requirement for an amalgamation is that the shareholders of each of the amalgamating corporations must approve the amalgamation agreement. The directors of the amalgamating corporations can either hold a duly constituted shareholder meeting to obtain approval of the amalgamation agreement or obtain a unanimous written shareholder resolution of the amalgamation agreement.
Articles of Amalgamation
After shareholders have approved the amalgamation agreement, the Amalgamating Corporation will file the articles of amalgamation (Form 2 for CBCA and Form 4 for OBCA) with relevant regulatory body. The articles of amalgamation essentially sets out the same information required in an articles of incorporation. In a typical long-form amalgamation, the amalgamation agreement will address each of the items required in the articles of amalgamation.
As a schedule to the articles of amalgamation, each of the Amalgamating Corporations must attach a Director’s or Officer’s Statutory Declaration. This statutory declaration is provided to support the Amalgamating Corporations claims to solvency. The statutory declaration establishes that:
- there are reasonable grounds for believing that:
- each amalgamating corporation is and the amalgamated corporation will be able to pay its liabilities as they become due; and
- the realizable value of the amalgamated corporation’s assets will not be less than the total of its liabilities and stated capital of all classes.
2. there are reasonable grounds for believing that:
- no creditor will be prejudiced by the amalgamation; or
- adequate notice has been given to all known creditors of the amalgamating corporations; and
- no creditor objects to the amalgamation otherwise than on grounds that are frivolous or vexatious.
Is your business qualified for amalgamation?
If you are not sure whether your business is qualified for amalgamation, call our corporate lawyer today to get professional help. We also have corporate lawyers in Oakville and London that are available.