DealMakers AFRICA Q1 2021
A Simple Guide to the New Law on Mergers in Ghana
by Nana Yaa Ahmed
Mergers in Ghana have historically been regulated mainly in relation to public companies, and companies in specific sectors. When the 2019 Companies Act came into force, it introduced a more elaborate merger framework that applies universally to all companies in Ghana. This article is a simple guide to the new requirements for mergers in Ghana.
A merger involves combining companies in a manner where an existing company (transferee company) absorbs the business, property and liabilities of another existing company (transferor company). There can be multiple transferor companies. A merger may also involve setting up a new company to receive the transfer of the business, property and liabilities of two or more existing companies.
Before the 2019 Companies Act, mergers were generally unregulated for private companies in Ghana. Some sectors had sector-specific merger regulations (in the form of pre-merger approvals). The banking, mining, telecommunications and petroleum sectors are some examples. Similarly, publicly listed companies required the approval of the Securities and Exchange Commission (SEC) and had to make certain public disclosures as conditions for a merger.
The 1963 Companies Act (repealed by the 2019 Companies Act) provided a limited framework for two kinds of mergers, namely:
mergers by private liquidation and sale of undertaking; and
mergers with court approval.
Under a merger by private liquidation and sale of undertaking, a solvent company had the option to undertake a merger by a resolution of at least 75% of its shareholders. The resolution authorised the voluntary or private liquidation of the transferor company. Secondly, it authorised an appointed liquidator to sell the whole or part of the company’s business or assets to a transferee company, in exchange for the issue of shares in the transferee company. Third, it authorised the liquidator to distribute the shares among the shareholders of the transferor company, according to their rights in the liquidation.
Under a merger with court approval, an insolvent company, its shareholder, creditor or liquidator could apply to the courts for an order directing a merger.
Mergers under the 2019 Companies Act
In addition to regulating mergers by private liquidation and sale of undertaking, and mergers with court approval, the 2019 Companies Act has also created two new regimes to govern all mergers, as well as rules for giving effect to mergers under those new regimes.
Merger of unrelated companies
Unrelated companies can undertake a merger by preparing a merger proposal (Long Form Merger Proposal), setting out the terms of the merger. These terms include:
details of the merging companies;
the number of shares in the transferee company which will be issued to the shareholders of the transferor company for a given number of shares;
the shareholding structure of the transferee company;
the consideration that the shareholders are entitled to receive, where the shareholders of the transferor company will not receive shares as consideration; and
the proposed constitution of the transferee company.
The Long Form Merger Proposal must be approved by the directors of both merging companies by a resolution. The directors who vote in favour must also sign a certificate stating that the conditions required for the merger have been satisfied, and stating the reasons for their opinion. The Long Form Merger Proposal must also be approved by at least 75% of each class of shareholders of the merging companies, and at least 75% of the creditors of each of the merging companies.
Merger of related companies
Related companies may merge without a Long Form Merger Proposal if the directors of each company pass a resolution to approve the merger, and the resolution provides that:
the shares of the transferor company will be cancelled without any consideration;
the constitution of the transferee company will be the same as that of the transferor company, and
the directors of each of the merging companies are satisfied that the transferee company will be solvent immediately after the merger.
The resolutions of the directors of the merging companies will be treated as the merger proposal under this form of merger (the “Short Form Merger Proposal”). The directors who vote in favour must also sign a certificate stating that the required conditions for the merger have been satisfied, and the reason for their opinion. Each company must give a written notice of the proposed merger to every secured creditor.
Giving effect to mergers
Whichever form of merger is contemplated, it will not be effective unless certain specified documents are submitted to the Registrar of Companies (the “Registrar”) for registration. These documents include the merger proposal; the certificate signed by the directors; and a ‘fairness’ report issued by an insolvency practitioner.
The shareholders of the transferor company must also approve and adopt the constitution of the transferee company by an ordinary resolution.
After the submission of the relevant documents to the Registrar, the Registrar will issue a certificate of merger and strike out the name of the transferor company from the Register of Companies. The date written on the merger certificate will be the effective date of the merger. The assets, rights and liabilities of the transferor company will be absorbed by the transferee company, such that a judgment for or against the transferor company will be enforceable for or against the transferee company.
Potential Difficulties for Mergers under the 2019 Companies Act
Requiring creditors’ approval for a merger gives too much power to creditors. Together with the logistical challenges of organising creditors’ meetings, this requirement may cause setbacks. Creditors may actively prevent a merger with no reason, and with no recourse for the shareholders or directors who are entitled to manage the affairs and decisions of the company. It seems a bit of an overkill to give such powers to creditors as a means of protecting their interests, when there are other adequate protections for creditors.
Applying the 2019 Companies Act to companies in merger-regulated industries creates another hurdle, which essentially duplicates regulatory supervision. These industry-specific merger frameworks have been effective so far, with competent regulators. On the other hand, the regulator of mergers under the 2019 Companies Act has a learning curve to negotiate. Perhaps the new regime could simply have required merging companies in the already-regulated sectors to submit specified information on the merger to the Companies Registry for registration.
Overall, the new regime of mergers under the 2019 Companies Act is progressive. There is now a comprehensive legal framework for, and structured approach to, mergers of companies. There is a quick and efficient means for the merger of related companies. The Companies Registry is empowered to ensure that merging companies comply with the relevant requirements.
Nana Yaa Ahmed is a Senior Associate | ENSafrica | Ghana.