The term “reverse merger” refers to a reorganisation whereby a subsidiary company absorbs the assets and liabilities of its parent holding company. With the approval of the merger, the parent company is being dissolved without being placed into liquidation and the subsidiary company continues to exist with direct shareholders, the persons who previously held the shares in the parent company.
Clients may wish to implement a reverse merger, where the corporate structure is desired to be simplified, and the subsidiary company is preferred to be kept alive. Such situations may include cases where there is no longer reason to maintain a two layer structure e.g. because the shareholder structure in the parent company has been simplified -for example, only one shareholder to have remained in the parent company, or the parent company to have no operations other than holding only one subsidiary, and at the same time, the subsidiary company to be party in agreements that must remain in place e.g. financing transactions, ongoing commercial arrangements or security agreements that cannot be amended. Other instances may be where the subsidiary has ongoing activities and employees, and moving those to another entity would cause disruption. Other reasons may also apply, for example due to requirements of foreign law, where the subsidiary holds assets in other jurisdictions, and registering those to another entity would be complex or impossible. Read more…