MERGERS AND AMALGAMATIONS IN TERMS OF SECTIONS 113 AND 116 OF THE COMPANIES ACT

MERGERS AND AMALGAMATIONS IN TERMS OF SECTIONS 113 AND 116 OF THE COMPANIES ACT

Corporate mergers and acquisitions play a significant role in many companies’ growth strategies. They are among the most effective tools utilised by forward thinking boards to scale and grow a business.

With the fast-paced society that we live in today and access to information being so readily available, businesses are scurrying to build shareholder value, taking advantage of potential complimentary industries and making the necessary corporate decisions to gain a bigger share of the markets they operate in.

Since the Companies Act, 71 of 2008 (as amended) (“the Companies Act“) came into effect on 1 May 2011, there has been a paradigm shift in the regulation of South African mergers and amalgamations.

The Companies Act introduced a new form of statutory merger which exists in addition to, and not in substitution of, the pre-existing methods used by companies wanting to effect business combinations, i.e. a sale of shares or a sale of business as a going concern.

The statutory merger is governed in terms of section 113 and section 116 of the Companies Act and the merger agreement is a mandatory requirement in terms of section 113(2).

In addition to each amalgamated or merged company passing the solvency and liquidity test in terms of section 113(1), section 113(2) provides further mandatory terms and conditions that must be addressed in the merger agreement, namely:

  1. the proposed Memorandum of Incorporation of any new company to be formed by the amalgamation or merger, must be included in the merger agreement;
  2. the name and identity number of each proposed director of any proposed amalgamated or merged company must be included;
  3. the manner in which the securities of each amalgamating or merging company are to be converted into securities of any proposed amalgamated or merged company, or exchanged for other property, needs to be detailed;
  4. if any securities of any of the amalgamating or merging companies are not to be converted into securities of any proposed amalgamated or merged company, the consideration that the holders of those securities are to receive in addition to or instead of securities of any proposed amalgamated or merged company;
  5. the manner of payment of any consideration instead of the issue of fractional securities of an amalgamated or merged company or of any other juristic person the securities of which are to be received in the amalgamation or merger;
  6. details of the proposed allocation of the assets and liabilities of the amalgamating or merging companies among the companies that will be formed or continue to exist when the merger agreement has been implemented;
  7. details of any arrangement or strategy necessary to complete the amalgamation or merger, and to provide for the subsequent management and operation of the proposed amalgamated or merged company or companies; and
  8. the estimated cost of the proposed amalgamation or merger.

Further to the above, a thorough regulatory investigation is required to ensure compliance with the relevant regulatory bodies and to ensure that the necessary consents and/or approvals are obtained (i.e. Takeover Regulation Panel approval or exemption, Competition Commission approval, etc.).

A compliant merger agreement, addressing all the requirements in terms of the Companies Act, is imperative for a successful merger. Should you need assistance perfecting a merger, don’t hesitate to give one of our lawyers a call.

Disclaimer. The articles on our website are provided for general information purposes only. We have taken care to ensure accuracy, however the content is not intended as legal advice. Always consult an attorney on your specific legal problems.

Service agreements: why they are necessary and what they should cover

Service agreements: why they are necessary and what they should cover

If you are a service provider of any kind, regulating your engagement with your customers is crucial to show potential investors how you have secured your revenue stream and managed your risk. Investors are going to be interested in how you protect your revenue stream. They will typically assess how “water-tight” your agreements are with your clients in order to determine business level risk.

A service agreement is an example of a revenue contract. This is the agreement that describes how your company generates revenue in return for delivering services and describes the fees which you charge.

Some key considerations for a service agreement are as follows:

  1. Description of your services:

It is important to accurately describe your services so there is clarity and certainty regarding what it is your customers are paying for. It can sometimes work well to describe the services by referring to your website which then provides for a full description of the services in greater detail. This has the advantage of allowing you to evolve your services over time, and change the specific terms and pricing on your website (on notice to the client).

  1. Duration of the agreement:

How long do you expect the service agreement to be in place? Depending on the nature of the services rendered, it may be for a specific period or ongoing. Whether the contract can be renewed and on what terms should also be carefully considered together with termination rights. You will want to ideally strike a balance between easily terminating the relationship when it no longer suits you while still attracting and maintaining a constant revenue stream without too much unexpected disruption.

  1. Risk provisions:

You should consider what warranties you are willing to make with respect to the quality or outcome of your services. This will be specific to your service offering but you should also consider the industry in which you operate and what your average client would expect. Your appetite for risk and the level of risk associated with your services should also determine what warranties will be offered. Another related consideration is what your liability to your clients should be, whether you will have any liability at all and how you manage this.

The other considerations which we discuss with our clients for the purposes of drafting their service agreements include service levels, payment terms, exclusivity, IP and license arrangements, data and privacy matters and whether there are any specific regulatory aspects applicable.

We provide a Service Agreement Package to start-ups and through this process we are able to prepare bespoke service agreements applicable and appropriate for each client. We can also assist with reviewing and updating existing service agreements, if you are not sure whether your existing contract is up to scratch.