Amalgamation is a useful corporate restructuring tool that is intended to be a simple and efficient process for two or more companies to combine and continue as one company, which will then assume their combined assets, rights, privileges, liabilities and obligations. Unlike a traditional merger, where assets and the like must be formally assigned to the merged entity, an amalgamation is intended to allow these to be integrated seamlessly by operation of law. This has the benefit of significantly reducing costs and time.
Singapore: standard amalgamation and short-form amalgamation
Under Singapore law, there are two forms of amalgamation: standard amalgamation and short-form amalgamation. The key provisions are found in sections 215A to 215K of the Companies Act (Chapter 50) of Singapore (the CA), which are inspired by the Delaware Corporations Code and modelled on the New Zealand Law Commission Company Law Reform. The standard procedures of amalgamation described in sections 215B and 215C of the CA apply to companies generally, while companies in the same corporate group may amalgamate via the short-form procedure described in section 215D of the CA without the requirement of a formal amalgamation proposal.
Amalgamation: transfer of rights and obligations?
An important question to consider is how the amalgamation regime interacts with non-transferability clauses under any existing contracts of the amalgamating company or companies.
Such non-transferability clauses (also known as non-assignment clauses) are a common feature in many commercial contracts. A typical example is as follows:
“This agreement may not be transferred or assigned, in whole or in part, by either party without the prior written consent of the other.”
The Singapore amalgamation regime allows two or more companies to combine and continue as one company, which can be one of the amalgamating companies or a new company. To the extent that the amalgamation proposes for, for example, Company A to be merged or subsumed under another company, Company B, or to continue as a new company, Company C, one interpretation is that this is a transfer of rights and obligations of Company A which is then caught by non-transferability clauses. Section 215G of the CA provides that an amalgamation has, among others, the following effects:
- All the property, rights and privileges of each of the amalgamating companies shall be transferred to and vest in the amalgamated company.
- All the liabilities and obligations of each of the amalgamating companies shall be transferred to and become the liabilities and obligations of the amalgamated company.
Given that the statutory provisions specifically mention “transfer”, companies may wish to carefully consider the implications of the amalgamation regime against the contractual arrangements which they have in place. The practical implication of a transfer is that the prior consent of counterparties may be required before an amalgamation can be effected, depending on the features of the non-transferability clause in question. This impact is magnified in the context of a strategic transaction as the extent to which consent is forthcoming (if at all) might materially affect the progress of such strategic transaction.
Which approach to take?
The ambiguity on this issue has resulted in a number of approaches. For example, there are those who favour a prudent approach and have sought to obtain consent from the relevant counterparties. Others consider such consent to be unnecessary and have taken a more aggressive stance, possibly taking a position that an amalgamation is a mere change in corporate personality rather than a transfer, and therefore would not breach the non-transferability clauses.
The situation can be more complex in relation to contracts governed by a foreign law. Additional issues which may arise are whether a foreign-law governed contract would recognise the amalgamation regime in Singapore, and how such foreign law would interpret whether amalgamation constitutes a transfer of assets under such contract. It may also consider that there is no transfer, only a change of corporate personality, with any transfer occurring by operation of law.
Given the ambiguities, it would be prudent for legal advice to be sought for companies considering an amalgamation. Each contract in question for the proposed amalgamating companies would ultimately need to be considered on its own terms, and in light of the circumstances within which the contract is formed.
Parties drafting contracts should also consider whether the non-transferability clause should clearly specify if transfers through amalgamations are prohibited.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
Client Alert 2021-151