Amalgamation

How BC law treats it

Amalgamation is the statutory merger mechanism in Part 9 of the Business Corporations Act, SBC 2002, c 57 (BCBCA). Unlike a share or asset purchase, the predecessor companies do not disappear in a sale. They continue as one amalgamated company that owns their combined property and is liable for their combined obligations, including existing contracts, claims and convictions. In a regular amalgamation, the companies enter into an amalgamation agreement setting out the terms, including how shares of each company are converted. Each company's shareholders adopt the agreement by special resolution, which under the BCBCA means a two thirds majority unless the articles set a higher threshold, and separate class votes may be required. Shareholders who vote against have dissent rights and can require the company to buy their shares at fair value. Affiliated companies can use short-form procedures. A vertical short-form amalgamation joins a parent with a wholly owned subsidiary, and a horizontal short-form amalgamation joins wholly owned sister subsidiaries, each on directors' resolutions without a shareholder vote. In every case, the company files an amalgamation application with the BC Registrar of Companies, and the amalgamation takes effect when the application is filed or at a later date and time specified in it (BCBCA s. 279), after which the Registrar issues a certificate of amalgamation. Federal law can also apply. Larger deals may require pre-merger notification under the Competition Act, RSC 1985, c C-34, and acquisitions of Canadian businesses by non-Canadians may require filings under the Investment Canada Act, RSC 1985, c 28 (1st Supp). Section 87 of the Income Tax Act allows qualifying amalgamations to occur on a tax deferred basis.

What it means for your business

Amalgamation is a common tool for simplifying a corporate group after an acquisition, combining holding and operating companies, or merging two businesses without a cash sale. Because liabilities carry over automatically, the parties need full due diligence on each predecessor. Contracts with change of control or anti-assignment clauses, leases, licences and lender consents should be reviewed before closing, and the tax result should be confirmed with an accountant. Example: After buying all the shares of a Richmond distributor, a BC holding company amalgamates with it by vertical short-form amalgamation, approved by directors' resolutions, so the group files one set of tax returns and annual reports.

Risks and common mistakes

Assuming amalgamation leaves behind a predecessor's liabilities, when the amalgamated company inherits all of them. Overlooking dissent rights, which can force the company to buy out objecting shareholders at fair value. Using the short-form process when the subsidiary is not wholly owned. Failing to check leases, licences and loan agreements for consents triggered by the amalgamation. Ignoring the Income Tax Act consequences until after the amalgamation is filed.