Mergers, demergers and corporate reorganisations

When a reorganisation is justified

A reorganisation is not undertaken because the structure looks untidy, but because a concrete decision requires it. The reasons are usually four: separating a valuable asset from the risk of the operating business, preparing the sale of a business line, simplifying a group that has accumulated dormant entities, or getting the company ready for an incoming investor or for family succession. We start by establishing which of those it is, because the right structure follows from the reason.

The available structures

• Merger. Absorption of one or more companies by another, or creation of a new one, with transfer of the estate as a whole.
• Demerger. Separation of part of the estate to form a new company or to be absorbed into an existing one, with or without the demerged company ceasing to exist.
• Conversion. Change from one corporate type to another without interrupting the company's existence.
• Creating a holding company. Reorganising ownership so the stakes sit under a parent entity.
• Contributions in kind and asset transfers. Moving real estate, equipment, trademarks or contracts to another company in the group.
• Transfer of a going concern. Where the operation has to move without moving the legal entity.
• Voluntary winding up. Orderly closure of entities that no longer serve any purpose.

The procedure and the third parties the law protects

The most underestimated part is the procedure. A merger or a demerger is not completed by a shareholder decision: there is an undertaking or a plan to approve, majorities to gather, publicity requirements to meet, rights of creditors and of absent or dissenting shareholders to address, and filings to make. Every step skipped is a ground for challenge years later.

• Merger undertaking or demerger plan, with the financial statements and exchange ratios supporting it.
• Notice, quorum and majorities in each participating company, with minutes able to withstand later scrutiny.
• Publicity of the transaction and handling of creditors' requests for security.
• Withdrawal rights of absent or dissenting shareholders, where the transaction triggers them.
• Public deeds where required, filing with the commercial register and updating of property, vehicle, trademark and licence records.
• Prior authorisation from the superintendence supervising the participating companies, where the law requires it.

Corporate and tax decided together

A structure that is right on the corporate side can prove expensive on the tax side, and the other way round. The tax regime for reorganisations distinguishes between transactions that produce immediate effects and those that do not, and that distinction depends on how the transaction is structured and on who ends up holding what. So the design is done together with our tax practice from the first draft, rather than sent over at the end for sign-off.

When the problem stops being structural

Sometimes the reorganisation that reaches the table is not about tidying the group but about keeping alive a company that can no longer pay. That is a different scenario, with its own rules under the insolvency regime of Law 1116 of 2006 and with limits on what can be done with assets while creditors remain unpaid. We say so when we see it, because a reorganisation mischaracterised in that context can end up challenged.

What the client receives

• A document setting out the proposed structure, the alternatives discarded and why, and the corporate effect of each.
• The full timetable with the steps, the statutory periods and who is responsible for each.
• The transaction documents: undertaking or plan, minutes, publications, deeds and applications for authorisation.
• The transaction registered and the asset, contract and licence records updated.
• A map of the resulting structure, showing who owns what and which obligations sit in each entity.