BSOG 2.1 Introduction

1This chapter ultimately derives from the Merger Procedures Guidance Note issued by the Commission in May 1999. It gives guidance on the requirements of the 1986 Act, as amended certain functions of the Commission were transferred to the Authority. This chapter is not intended to be exhaustive and is not a substitute for looking at the 1986 Act and the Mergers Regulations 1987 (SI 1987/2005) as amended by the Mergers (Amendment) Regulations 1995 (SI 1995/1874), the Merger Notification Statement Regulations 1999 (SI 1999/1215), where applicable, and a society's own Rules. Nor is it a substitute for the society seeking its own legal advice. It gives a description of the relevant provisions of the 1986 Act, of the information which must be made available to the Authorityand to societies' members, together with an outline of the procedures to be followed at general meetings, and the voting majorities required to pass the Merger Resolutions which the members are to be asked to approve. This chapter describes the role of the Authorityin approving the statements to members under Schedule 16 to the 1986 Act, in its prudential supervision of mergers, and in confirmation hearings. It also gives a broad indication of the way in which the Authoritymay be expected to exercise its discretionary powers. Except as described in section 6, to which section 7 of this chapter also applies, this chapter is concerned only with voluntary mergers under Sections 93 and 94 of the 1986 Act.

It is for the boards of societies to assess the case for a merger, and they must explain and recommend their decision to their members. However the Authority'sstaff are available to give advice on the procedures to be followed and the information required to ensure that the members can reach fully informed decisions. Societies are strongly recommended to consult the Authorityearly on in the formative stages of merger discussions. Such consultation will, of course, be treated in the strictest confidence. It will also be helpful to have regard to the indicative timetable set out in paragraph BSOG 2.8.3 G.

Societies should consult their own legal advisers about the application of the provisions of the 1986 Act, and the general law, to the particular features of a proposed merger.

This chapter considers each stage of the merger procedure in chronological order. The remainder of this section gives a synopsis of the relevant requirements of the 1986 Act, which are then discussed in more detail in subsequent sections:

1. (1)

   Section 2.2 Preliminary Matters, considers the rationale for a merger and its terms and the handling of public announcements, and gives guidance on certain prudential issues.

2. (2)

   Section 2.3 Information Provided to Members, discusses the form and content of the statutory Schedule 16 Statement and the accompanying rationale and statements by the board of the society, and describes the form of application to be made to the Authorityfor approval of the Statement.

3. (3)

   Section 2.4 General Meetings and Resolutions, discusses the resolutions and majorities required to pass them, the notice of meeting, the register of members and members entitlement to vote, the arrangements for general meetings and the scrutineers report. It also describes the Authoritysdiscretionary powers.

4. (4)

   Section 2.5 Confirmation, describes the form of application to the Authorityfor confirmation of a merger, and the procedures which the Authorityexpects to follow in considering and hearing written and oral representations and in reaching its decision.

5. (5)

   Section 2.6 Transfer of Engagements under Direction, describes the modified procedure to be followed when a society has been directed by the Authorityto transfer its engagements to another society and/or to proceed by board resolution.

6. (6)

   Section 2.7 Registration and Dissolution, briefly discusses the process of registration of amalgamations or transfers of engagements and dissolution of the amalgamated or transferor societies.

7. (7)

   Section 2.8 Timetable, reviews the expected timetable, including statutory notice periods, which may be expected to apply to a merger from start to finish.

The statutory provisions concerning mergers are in Sections 93 to 96 of, and Schedule 16 to, the 1986 Act, where three types of transaction are provided for:

1. (1)

   Amalgamation, where two or more societies unite to form a new successor society;

2. (2)

   Transfer of engagements, where a society (the transferor) transfers its membership and the whole of its undertaking to another (the transferee), which then continues as before; and

3. (3)

   Partial transfer of engagements, where a society transfers only a part of its membership and business to another society (for example, some outlying branches).

The procedures for all three are much the same, and the differences are explained in the relevant sections of this chapter. The Authorityspractice as described in this chapter is derived exclusively from previous experience of transfers of engagements because, so far, there have been no amalgamations nor partial transfers under the 1986 Act. However, it is not expected that the Authorityshandling of amalgamation procedures would be significantly different from what is described here.

The purposes of the provisions of the 1986 Act are to ensure that the members are given all the material information they need about the terms of the merger which they are asked to approve and a proper opportunity to cast their votes. Subsequently, they are to be given the opportunity to make representations about that process before the merger is confirmed.

The 1986 Act makes no provision for a merger to be initiated by any other means than a proposal by a board put to the society's members. It requires that each member who is entitled to receive notice of the general meeting at which the Merger Resolutions are to be moved must also receive a copy of the Schedule 16 Statement. A merger must be approved by a shareholding members resolution and a borrowing members resolution. There is an additional voting requirement for the approval of a partial transfer of engagements.

If the terms of a merger include provision for the payment of compensation to directors or other officers for loss of office or of income, then the proposed payments must be approved by a separate special resolution. A further special resolution may also be required if there is to be a distribution to members which exceeds the limits described in paragraph BSOG 2.4.4 G.

Sections 93 to 96 of the 1986 Act specify certain procedures for the consideration of representations by interested parties concerning confirmation, and the criteria which the Authoritymust consider before deciding whether or not to confirm a merger. The Authoritymay not consider matters concerning the merits of merger proposals or the fairness of the terms which the members have approved by passing the Merger Resolutions.

The statutory requirements of the 1986 Act are explained and discussed in more detail in subsequent sections of this chapter. In addition, societies and their advisers must have regard to the legislation mentioned below.

Societies should inform the Office of Fair Trading of a proposed amalgamation or transfer of engagements where the UK turnover associated with the enterprise which is being acquired exceeds 70 million or the enterprises which cease to be distinct supply or acquire goods or services of any description and, as a result of the merger, together supply or acquire at least 25 per cent of all those particular goods or services of that kind supplied in the UK or in a substantial part of it.

The OFT has a function to obtain and review information relating to merger situations, and a duty to refer to the Competition Commission for further investigation any relevant merger situations where it believes that it is or may be the case that the merger may or may be expected to result in a substantial lessening of competition.

It is essential that any submission to the OFT is undertaken at the earliest possible opportunity since, should the OFT decide to refer a merger to the Competition Commission that would be a material fact to be disclosed in the Schedule 16 Statement, unless it is impracticable to put the matter to members until the Competition Commission has reported.

These Regulations have the effect that the employees of a transferor society automatically become the employees of the transferee society following the merger. They require, in particular, information to be given in certain cases to employees representatives, long enough before the merger takes place, to enable consultations to be held between the society and those representatives. Failure to inform or consult in this way is a ground for reference of the matter to an employment tribunal and there are other significant provisions. Societies are advised to consult "A Guide to the 2006 TUPE Regulations for Employees, Employers and Representatives" which explains the Regulations and which is available from the TUPE section of the Department of Trade and Industry Employment Matters webpage, under the heading "Trade Unions and collective rights" see www.dti.gov.uk/employment/.

Societies should take advice on the timing and amount of tax liabilities.

Societies should be aware that this Order modifies various relevant provisions of the 1986 Act. This enables the use of electronic communications between societies, their members and other persons on matters relating to a proposed merger, such as the Schedule 16 statement and the voting arrangements. The Order requires that societies must obtain consent before using electronic means of communication. The remaining text of this chapter has not been amended to take account of the Order. A society proposing to use electronic communications in relation to a merger will need to take its own legal advice as to how the procedures described in this chapter will have to be adapted. In that event the Authoritywill also adapt its own procedures appropriately.