Merger of corporations in Nicaragua

By: Meyling Sampson

We are in an increasingly competitive and globalized world, which has caused a growth in the corporate activity, arising the need to create alliances between multinational and local companies that allow to face in better conditions the global competition, because of this there is a greater demand to develop corporate strategies that involve important corporate transformations, such is the case of mergers of corporations.

The merger is the mechanism by which two or more corporations merge their assets into one, which can happen: 1) By Consolidation, which is when the companies merge creating a new company and extinguishing the others; or 2) By Absorption, which is when one of the merging companies survives (absorbing company) and the other companies are absorbed by it, thus leading to their extinguishment (absorbed companies).

The Nicaraguan Code of Commerce regulates the subject of the merger in five articles, in which it establishes the manner in which the merger of corporations must be carried out, and in this sense, article 263 of the referred code indicates that there must exist in each company party to the merger a prior agreement approving the merger, which must be published in La Gaceta, the official gazette.

Once the agreement is published, article 264 of the Code of Commerce provides three possible scenarios: 1) the merger will take effect after three (3) months from the date of publication thereof, so that third parties may oppose such merger; 2) it will not be necessary to wait for such term if the entities can authentically prove that all the debts they have have have been satisfied or that the amount corresponding to the amount of all the debts of the companies has been placed to the order of the judge; 3) the third scenario is that the companies to be merged have expressly obtained the consent of all the creditors, in which case after the merger agreement has been published it will not be necessary to wait the three months indicated in paragraph 1.

Article 24, paragraph a) of Law No. 601 “Law for the Promotion of Competition” regulates concentrations, indicating that it is considered as such “When economic agents that have been independent among themselves perform, among others: acts, contracts, agreements, conventions, which have as purpose the merger, acquisition, consolidation, integration or combination of their businesses in whole or in parts, ceasing to be independent”, this type of concentrations according to the same article does not require notification or authorization by Procompetencia.

If the provisions of the preceding paragraphs are complied with, and there is no opposition from third parties to the merger, the public deed of merger will be executed, which must be registered in the Public Mercantile Registry of the department in which the absorbing company is registered and in the Public Registries in which each of the absorbed and therefore extinguished companies are registered.

Article 36, numeral 11 of Law No. 698 “General Law of Public Registries” establishes that when registering acts typified by Law No. 601, the letter of no objection of notification or resolution of Procompetencia or of the corresponding regulatory entity must be attached to the deed.

In addition to the above, in the event that the companies to be merged have foreign legal entities as partners, the following must be attached to the merger deed for each foreign legal entity partner: i) certified copy of the articles of incorporation, ii) updated registry certification showing the company’s registration data; and iii) updated certification of shareholder composition, with the corresponding apostilles or authentication, according to the issuing country.

Once the merger agreement is registered, the merger will be considered as definitively effected and by virtue of it the surviving company will assume all the rights and obligations that all the extinguished companies had.

After this, it is necessary for the surviving company or company resulting from the merger to amend its articles of incorporation in order to increase the capital of the absorbing company or company resulting from the merger and thus be able to give shares to the shareholders of the absorbed companies, according to the proportion of their contributions.

The capital increase must comply with the regulations set forth in Article 213 of the Commercial Code for amendments to the Articles of Incorporation, which implies that the capital increase must be approved by the judge and the judgment approving the amendment to the Articles of Incorporation must be registered in the Public Mercantile Registry.

Once the process is completed, the new shareholder composition resulting from the merger and capital increase must be registered in the Mercantile Registry, and the declaration of beneficial owner of the absorbing company must be updated.

In view of the merger, the tax, municipal and labor authorities must be notified of the merger, and in the case of all the absorbed assets, the change of ownership must be registered according to the type of asset in question.