Need help with company amalgamations?

Transcript

Duration: 17 minutes

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Hello, my name is Calantha Juneja, and I'm a senior solicitor at the Companies Office in Auckland.

Hello, my name is David Josland, and I'm also a senior solicitor in the legal team in the Companies Office in Auckland. Calantha and I are responsible for reviewing amalgamation applications when they are lodged online. You'll be hearing more from me later on.

This webinar covers common errors we encounter with short form amalgamation documents. It is not intended to be a high level discussion of the amalgamation process. The purpose of this presentation is to highlight these common areas. And from a practical perspective, identify ways to resolve or prevent them.

It is important to note that our role as legal advisors to the Registrar of Companies is not to review draft documents or to provide advice to presenters about the content of the documentation.

When we review the documents, we are assessing them as to their registerability. And whether they satisfy the requirements for amalgamations prescribed by the Companies Act 1993. Further information about the Registrar's role in this matter has been published in a recent LawTalk article. You may have already seen it.

For completeness, please note that we will not be reviewing draft documents prior to lodgement with the Registrar. Given the high number of rejections of amalgamations over this year, we thought it would be beneficial to highlight some of these common errors that we have seen with documentation to assist you with preparing your amalgamation documents in the future.

We have all at some stage in our career experienced a few choice words from our clients when we have made a mistake. Or if asked them to re-signed documentation, particularly in a time sensitive matter such as an amalgamation. So let's get it right the first time.

Of course we are happy to take any questions on this presentation. Please note that the Companies Office is in the process of considering improvements to the register. We are also happy to take any feedback or comments you may have on this presentation or the online amalgamation service itself.

So let's have a look at these common errors. The common errors that we will be discussing today are content and directors resolutions. The unintended cancellation of a shareholder in a continuing company. Another error we'll be looking at is the change of the company name upon amalgamation, whether this is a new name or if you would like to adopt one of the company names of the removed companies as a result of the amalgamation process.

We'll also be looking at incorrect content and director certificates — for example, reference to Section 10 of the Financial Reporting Act 1993.

And lastly, David will be taking you through incomplete or inaccurate directory information. He'll also be discussing some practical tips to assist you with your future amalgamation documentation.

Before I take you through these errors, as you know, short form amalgamations are covered by Section 222 of the Companies Act. There are two forms of amalgamation under Section 222. And the ones that we see are the most common is Section 222 subsection 2. You will need to identify which subsection the proposed amalgamation is captured by. We may raise this as an issue with you, but it is really up to you to check the particular company structure and identify whether a vertical or horizontal amalgamation is appropriate.

Let's have a look at their content for resolutions. Section 222 prescribes the content for resolutions. Ideally, the resolutions should mirror each other. If the continuing company has a constitution, generally this will need to be adopted as the amalgamated company's constitution. If it does not, then please address this issue in your resolutions.

For example, you could say something along the lines of company X does not have a constitution. Therefore, the amalgamated company will not have a constitution. And as such, its procedures will be governed by the Companies Act 1993.

The resolution must also provide for the shares of all of the amalgamated companies, but not the continuing company, canceled, without payment, or other consideration. And those words, without payment or other consideration, are important because they are adopted directly from the wording of the act. So please do use that wording.

The cancellation of shares gives rise to another common error. So having a look at the next slide, cancellation of shareholders. If the sole shareholder of a continuing company is a company which is to be removed as part of the amalgamation, this is fatal to the amalgamation itself. What it means is that the continuing company will not have a shareholder.

So to address this issue, you will need to appoint a shareholder and specify share allocations in the resolutions. This is critical. And the wording that you use to set out this in each resolution should be exactly the same.

We have also seen resolutions that appoint the shareholders with the same share allocations from the removed company. In other words, it is possible to carry across the shares.

Where it may become problematic is where the relevant company has a constitution, but that constitution is not adopted by the continuing company. In that case, you can adopt the removed company's constitution to carry across those shares. Again, this does need to be clearly detailed in the resolutions.

A tip is to print out each amalgamating companies extract and cross out the shareholders to see whether the continuing company will be left without a shareholder. That's what we do.

Now the last error that I will be taking you through before you hear from my colleague, David Josland, is the change of name. If you do wish to change the name of the continuing company upon amalgamation and have already received preapproval for that name change, and it has not expired, the change of name needs to be specified in the resolutions. The reason for this is when the amalgamation is registered, the certificate will record the company's previous name, as well as its new name. The name approval letter will need to be lodged with your amalgamation documents in the Supporting Documents section.

Where it does become complicated as where you want to retain the name of the company that is removed as a result of the amalgamation and reserve that name for the continuing amalgamated company. Obviously, this cannot be addressed in the resolutions because you cannot apply to reserve the name, as the name is already in use at that time the amalgamation documents are registered.

However, what you can do is add a note in the 'Presenters Comment' section when lodging your documents online. Your comment could note that you intend to reserve the name of a removed company as soon as the removal occurs. Of course, there will be a window where the company is off the register, which is risky as someone else may reserve the name before you do.

Name reservation applications are assessed independently and on a case-by-case basis at the time the application is made. We can cater for this type of name change if we do a manual registration of the amalgamation, as our processing team can complete the name reservation process on a client's behalf as part of the actual amalgamation itself. This does negate the risk of the removed companies name being reserved by a third party.

I'll now leave you in the capable hands of my colleague, David Josland, who will discuss the remaining areas that we see.

Thank you, Calantha. Moving on from resolutions to a different amalgamation document, directors certificates.

All registered directors need to sign the certificates. These are personally given. So if there is a sole director, remember to use I instead of we in the content of the certificates.

For solvency certificates under section 2225, please do not refer to Section 10 of the Financial Reporting Act 1993. Most applications this year have been rejected for this reason.

Section 10 of the Financial Reporting Act 1993 has been repealed. With the repeal of the set from the 1st of April 2014, when it ceased to apply to balance states on or after that date, new wording was introduced for the solvency test in Section 4, particularly Section 4 subsection 3 that applies the test to amalgamations.

Section 4 used to refer to the Financial Reporting Act 1993, hence the need for it now to be amended in your documents. The Financial Reporting Act 2013 incidentally is different, as it deals with matters such as financial standards and auditors.

Financial reporting is under Part 11 of the Companies Act 1993. The test was also amended in Section 4 subsection 2 for single company exercises of the solvency test, where money is to leave the company for no apparent benefit, such as with the distribution or an acquisition of shares from shareholders.

Section 4 subsection 3 substituted a general review of the latest financial statements for the amalgamating companies and a specific review of the accounting records of the particular company. We have also seen reference to the New Zealand tax administration financial statements order 2014, which is also incorrect.

You can adopt the wording from the specimen documents which reflects the current position. The reference to accounting records needs to refer to the company for which the certificate is given and not the name of the continuing company. So in this regard, we recommend that you update your directors certificates accordingly.

For Section 223(c) certificates, each board of the amalgamating companies must signed certificates confirming that they have approved the amalgamation in accordance with the Companies Act 1993 and the constitution of the particular company, if it has one. Now a common error that we see is where clients have left out reference to the constitution in the certificate. A really good idea is to check the registered documents for the company on the Companies Register to see if each of the companies involved in the amalgamation have a constitution.

I'm now going to talk about another document that trips up a lot of our presenters of documents. This relates to the directory information that is provided as part of the amalgamation documentation. All that is required under Section 223(b)(a) is the name of the directory, the date and place of their birth, and also the country of their birth. A single page headed up with the name of the continuing company with the above information listed will suffice.

Please do not screenshot director details from the Companies Register or upload a copy of the director's passport. This results in many amalgamations being rejected whether documentation is otherwise correct.

Director information must be uploaded separately to the amalgamation documentation. If it is uploaded together with the director resolutions and certificates, then the application will be rejected as the directory information must not form part of the public register.

I'm now going to cover some tips that hopefully you'll find useful. The tips list is self-explanatory. One tip I will discuss, however, is the lodgement date. Any presenter, whether it is your first amalgamation or not, should try to lodge the documents at least three weeks before the effective amalgamation date. This will give us sufficient time to review the documents for registration purposes. And if there are errors, we will have ample time to resolve them. Try not to submit fresh applications to us on the day of the amalgamation.

Check for any unusual features. If there is to be a change of directors or a change of name of the amalgamated company is going to take place, make sure that the documents provide for these changes. And draw the Registrar's attention to them by adding a note to the Comments field online when you submit the documents.

Documents that are resubmitted will not be backdated. The Registrar must register documents on the lodgement date, provided that the documentation is an order, unless there is a future amalgamation date specified. For further information, we invite you to review our amalgamation checklists on the website before you submit your documents. There are checklists for short form and long form amalgamations available.

We trust you all will update your templates where necessary. We have seen incorrect documents from firms where different offices used different template. So in some cases, a firm-wide update may be necessary.

Two additional things to look out for are in relation to companies that are taking part in an amalgamation is whether or not they're up-to-date with their annual return filing requirements. It may be necessary to file an annual return — for instance — for one of the companies or for a company that may be removed from the register as part of the amalgamation.

Another thing to watch out for is the removed company registered on the Financial Service Providers Register? Remember that licences are not transferable so ensure that the removed company does not hold a licence. If the company is registered on the Financial Service Providers Register, the Registrar of Financial Service Providers will get notification that the company is being removed from the Companies Register. This starts the financial service providers de-registration process.

And just a reminder, please be aware that we no longer review draft amalgamation documentation.

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Thanks for joining us for our presentation today. We trust you found it helpful.

And we look forward to receiving your feedback on this presentation.