Introduction
An amalgamation of companies refers to a legal process whereby the property, liabilities and undertakings of two or more companies merge and be succeeded by a single surviving company, the amalgamated company. The amalgamating companies will cease to exist as separate entities and their shareholders will become the shareholders of the amalgamated company.

Before the commencement of the new Companies Ordinance (Cap. 622) (“CO”), amalgamation is a time consuming and costly process requiring sanction of the court. The new CO now provides for a court-free regime for intra-group companies amalgamation. 

Types of Amalgamation
There are two types of court-free amalgamation under the CO, the vertical amalgamation and the horizontal amalgamation. A vertical amalgamation refers to an amalgamation between a holding company and one or more of its wholly owned subsidiaries, as illustrated by the following diagram:

A horizontal amalgamation refers to an amalgamation between two or more wholly owned subsidiaries of a company, as shown in the diagram below:

Conditions to be Satisfied
The following conditions have to be satisfied to implement a court-free amalgamation:

1.         each amalgamating company is a Hong Kong incorporated company limited by shares;

2.         each amalgamating company is part of the same wholly-owned group of companies;

3.         the board of directors of each amalgamating company must make solvency statements and issue certificates to confirm that:

(a)      each amalgamating company is solvent;

(b)      the amalgamated company will be able to pay its debts for 12 months subsequent to the amalgamation; and

(c)       the assets of each amalgamating company are not subject to any floating charges or, if such charges exist, the chargees must give written consents to the amalgamation;

4.         in the case of vertical amalgamation:

(a)      the shares of each amalgamating subsidiary will be cancelled without payment or other consideration; and

(b)      the articles of the amalgamated company will be the same as the articles of the amalgamating holding company;

5.         in the case of horizontal amalgamation:

(a)      The shares of all but one of the amalgamating companies will be cancelled without payment or other consideration; and

(b)      The articles of the amalgamated company will be the same as the articles of the amalgamating company whose shares are not cancelled;

6.         the directors of each amalgamating company must:

(a)      give written notice of the proposed amalgamation to every secured creditor of the amalgamating company; and

(b)      publish the notice of the proposed amalgamation in an English and Chinese newspaper in Hong Kong; and

7.         the members of each amalgamating company must pass special resolutions to approve the amalgamation.

Objections by Members, Creditors, etc.
A member or creditor of an amalgamating company or a person to whom an amalgamating company is under an obligation may apply to the court, before the effective date of the amalgamation, to challenge the amalgamation proposal, and the court may make such order as it thinks fit in relation to the amalgamation proposal if such proposal would unfairly prejudice such party.

Effects of Amalgamation
Once the amalgamation becomes effective:

1.         each amalgamating company ceases to exist as an entity separate from the amalgamated company;

2.         the amalgamated company succeeds to all the property, rights and privileges and all the liabilities and obligations, of each amalgamating company;

3.         any proceedings pending by or against an amalgamating company may be continued by or against the amalgamated company;

4.         any conviction, ruling, order or judgment in favour of or against an amalgamating company may be enforced by or against the amalgamated company; and

5.         any agreement entered into by an amalgamating company may be enforced by or against the amalgamated company unless otherwise provided in the agreement.

Implications of Amalgamation
While the court-free amalgamation regime provides an easier way for intra-group restructuring, it should be noted that amalgamation may trigger events of default in commercial documents executed by an amalgamating company. Due diligence should be conducted in relation to any existing contracts or commercial arrangements before the commencement of the amalgamation. Furthermore, the amalgamation may not be recognized under foreign laws. Foreign advice should be sought if necessary.

For enquiries, please contact our Corporate & Commercial Department:

E: cc@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.