In a legal merger two or more legal entities combine into one, with the assets and liabilities passing by universal succession. In a demerger the assets pass instead, wholly or partly, to one or more other entities. In neither case is separate transfer of each individual item required.
Legal basis
Title 7 of Book 2 of the Dutch Civil Code contains the regime: Articles 2:308 and following for mergers and 2:334a and following for demergers. The procedure runs through a proposal drawn up and filed by the boards, an announcement in a national newspaper, a one-month opposition period for creditors under Article 2:316, and finally a resolution of the general meeting and a notarial deed. Article 2:334t provides that after a demerger the acquiring entities remain jointly and severally liable for the obligations of the demerged entity, each up to the value of the assets received. Where staff transfer, Article 7:662 applies.
How it works in practice
The construction is used for group restructuring, for carving out a business unit for sale and for winding up dormant companies. Its main advantage over an asset deal is that contracts in principle pass without the counterparty’s consent, unless the contract contains a change-of-control clause. Permits do not always transfer, which calls for a check permit by permit.
Where it goes wrong
The opposition procedure is underestimated: a creditor filing opposition in time can hold up the deed until security is provided. A second risk is the continuing joint and several liability after a demerger, which partly undoes the intended separation of risk. Third, change-of-control clauses in key contracts are often discovered only after the proposal has been filed.
Related terms
The merger is an alternative to the asset deal and the share transfer, and sometimes ends in dissolution and liquidation.
Considering a restructuring? Our corporate law specialists guide mergers and demergers from proposal to deed.
