Legal Effects Of Merging Companies

• Published date: 08 February 2023
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Sariya Al Hadi & Ali Al Rashdi & Co.
• Author: Sariya Al Hadi & Ali Al Rashdi & Co

The Commercial Companies Law No 18/2019 regulated the merger of companies in articles 33 to 39. The Law determined two ways for the merger. The first one is a merger by way of absorption through the dissolution of one or more companies and transfer of its or their assets and liabilities to an existing company. The second one is a merger by way of consolidation through the dissolution of two or more companies and the establishment of a new company to which the assets and liabilities of each one of the merged companies shall be transferred. The Law also determined the merger procedures, information, and the documents required to be submitted to the Commercial Register Section at the Ministry of Commerce Industry and Investment Promotion. As a result of the merger, whether by way of absorption or consolidation, the legal personality of the merged or dissolved company shall expire and a new one shall be created. This results in several legal effects, the most important of which are:

• Transfer of the debts of the merged company to the new company.

If the merger resolution is published according to the requirements of Article 37 of the Commercial Companies Law and the creditors do not object during the notice period, the merger resolution shall be deemed final and consequently, the merging company or the new company shall replace the merged companies in all their rights and liabilities from the date of registration of the companies' details in the registry of the merging company in cases of merger by way of absorption, or from the date of registration of the new company with the Registrar in cases of merger by way of consolidation pursuant to Article 38 of the Commercial Companies Law. In other words, the merging company shall be considered a universal successor of the merged company and shall legally replace it in all its rights and liabilities arising from its previous contacts. This shall be in the application of the general rules of the extension of the effects of the contract to the universal successor as determined by Article 162 of the Civil Transactions Law which reads as follows:

"The contract shall not incur any obligation to a third party but it may grant him a right thereof."

• Transfer of Employment Contracts

The merger does not affect the employment contracts where such contracts shall continue by the force of law between the worker and the new employer. The effect of the contract shall extend to the new employer, who shall be responsible for...