Singapore: Amalgamation And Striking-off As Effective Tools In Restructurings

I. INTRODUCTION

Amalgamations and striking-off applications, although not new, have in recent times been frequently used as effective tools by corporations in restructuring their businesses, specifically by divesting non-core pieces of their businesses. In this article therefore, we discuss the key requirements and procedures for amalgamations and striking-off applications.

II. AMALGAMATION

1) Amalgamation procedure

There are two (2) forms of voluntary amalgamation procedures under the Companies Act 1967 (Companies Act), the procedure under section 215D of the Companies Act (Short Form Amalgamation) and the procedure under sections 215B and 215C of the Companies Act.

The Short Form Amalgamation is available solely for companies within the same corporate group and where there are no minority interests, and is hence suited for intra-group restructurings and reorganisations. This procedure is only permitted between a holding company and one (1) or more of its wholly owned subsidiaries, or between two (2) or more wholly owned subsidiary companies of the same company. The resultant company will be either the wholly owned subsidiary or the holding company.

The key steps for a Short Form Amalgamation are set out below:

2) Potential restrictions to an amalgamation

In terms of restrictions, there is an avenue for a member or creditor of an amalgamating company to apply to the Singapore High Court (the High Court) to object to the amalgamation before the effective date of the amalgamation. If the High Court is satisfied that giving effect to an Amalgamation Proposal would unfairly prejudice such member or creditor, it may give the following orders:

1. directing that effect must not be given to the Amalgamation Proposal (effectively preventing the amalgamation);
2. modifying the Amalgamation Proposal in such manner as may be specified in the order; or
3. directing the amalgamating company or its board of directors to reconsider the Amalgamation Proposal (or any part thereof).

3) Legal implications of an amalgamation

After the amalgamation, the Companies Act sets out the effects of the amalgamation, which take effect on the date shown in the Notice of Amalgamation, and include the following:

1. the amalgamated company has the name specified in the Amalgamation Proposal;
2. all the property, rights and privileges of each of the amalgamating companies are transferred to, and vest in, the amalgamated company;
3. all the liabilities and obligations of each of the amalgamating companies are transferred to, and become the liabilities and obligations of, the amalgamated company;
4. all proceedings pending by or against any amalgamating company may be continued by or against the amalgamated company;
5. any conviction, ruling, order or judgement in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and
6. the shares and rights of the members in the amalgamating companies are converted into the shares and rights provided for in the Amalgamation Proposal.

In addition to the statutory effects of the amalgamation, it is usual for all of the contracts that the companies being amalgamated may have entered into with third party suppliers and service providers, or any contracts relating to any leasehold interest over property, to first be novated to the surviving amalgamated company.

Another of the usual steps with an amalgamation would be to ensure that the employees of such amalgamating companies, that will not exist after the completion of the amalgamation, are transferred to the surviving amalgamated company.

III. STRIKING OFF SUBSIDIARIES

When a holding company decides to do away with its subsidiaries as part of the restructuring or reorganisation of its group (and not pursue amalgamation), an application to strike such subsidiaries off the register maintained by ACRA under the Companies Act (the Register), is another viable option.

1) Striking-off application

In accordance with section 344A of the Companies Act, ACRA may, on the application by a company, strike the company's name off the Register on such grounds, and subject to such conditions, as may be prescribed.

ACRA will exercise its powers to strike a company off the Register, upon the company's application, only if the following criteria (the Striking-off Criteria) are satisfied:

1. The company must have ceased trading or not commenced business from the date of its incorporation.
2. The company must not have any outstanding liabilities with the Inland Revenue Authority of Singapore (IRAS), Central Provident Fund Board and any other government agency. If there are such liabilities, the company must settle them before making an application for striking-off.
3. The company must not have any outstanding charges in the company's charge register. If there are any charges (e.g. mortgage) lodged with ACRA against the company, these charges must be removed before making an application for striking-off.
4. The company must not be involved in any court proceedings (within or outside Singapore). If the company is aware that there is an impending court action against it, it should not make any application for striking-off.
5. The company must not be involved in any current or pending regulatory action or disciplinary proceedings.
6. The directors of the company must obtain the written consent of the majority of the shareholders of the company.
7. The company must not have any current or contingent assets and liabilities.
8. The company has either submitted the last set of audited accounts (where it is a public company limited by guarantee) or the latest unaudited balance sheet (for all other companies).

In addition, the following documents must also be prepared for a striking-off application:

1. directors' resolution to approve the striking-off of the company;
2. shareholders' resolution to approve the striking-off of the company or a letter of consent from the shareholders relating to the striking-off; and
3. directors' declarations that all the Striking-off Criteria have been satisfied.

2) Potential restrictions to a striking-off application

Any interested person, such as IRAS, an unpaid creditor, a director who has not made the statutory declaration or a shareholder of the company who did not approve the striking-off, can submit an objection against the striking-off application. If the company is unable to resolve the objection within two (2) months, the striking-off application will lapse and the company can only submit a new application after the objection has been cleared.

IV. CONCLUDING REMARKS

Amalgamation and striking-off applications are both efficient and effective tools to achieve corporate restructuring. As mentioned above, each of them presents unique requirements and implications which should be carefully considered before employing them, and businesses should therefore seek legal advice when considering the use of amalgamation and/or striking-off as a corporate restructuring tool.

Originally published February 16, 2023

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.