Modernization of merger and spin-off regime

Last November 22, the Superintendency of Companies proceeded, by means of an administrative act, to modify several aspects related to the Basic Legal Circular. Among these, it proceeded to eliminate and/or modify several of the circumstances that, if applicable, would oblige the intervening companies to request prior authorization before being able to perfect their merger and spin-off operations.

The first change is the modification of the circumstance of having to request prior authorization for the perfecting of a merger or spin-off simply because the absorbing entity (in a merger) or the resulting entity (in a spin-off) is foreign. The new rule applies only to spin-offs, and limits this to when the assets of the spin-off are less than twice the foreign liabilities. Thus, the Superintendency lifts the existing block to the regime of cross-border integrations or reorganizations and, under the presumption of good faith, extends to the foreign entities involved the same solidarity regime applicable to domestic companies.

The second change is the modification to the circumstance that the capital of the company resulting from the merger is less than the sum of the capital of the merged companies, except when such decrease corresponds to the elimination of the investment in the proportion in which they participate in the capital. Through Official Letter 610-002618 of September 29, 2017, the Superintendency clarified that this "negative summation" of capitals in the merger, in addition to occurring in the elimination of reciprocal investments, could occur when in such process the right of withdrawal is exercised by one or more associates. In this sense, the entity clarifies that it will only be necessary to request the prior authorization of such entity when the addition of the capitals, in addition to subtracting, implies an effective reimbursement of contributions, as it happens in the process of the right of withdrawal.

The third change is the elimination of the circumstance according to which prior authorization must be requested to carry out the spin-off process when the capital of the company benefiting from such operation is not increased by the same amount by which the capital of the spin-off company was decreased. This change may be due to the same premise previously studied, i.e., that such lower capital corresponds to a reciprocal elimination of investments or to the effect of a withdrawal right process. It could be thought that this could also be due to the recognition of the preponderance of equity -a concept that reflects the true general pledge of creditors- over the concept of capital -a static and historical concept that in no way reflects the financial health of the entity-.

The fourth change consists of eliminating the requirement to request prior authorization from the Superintendence of Corporations to carry out the reorganization when other entities supervised by other superintendencies participate in the transaction, but the Superintendence of Corporations is competent to authorize the operation due to its residual competence. This is eliminated and, in its place, it is indicated that the Superintendence of Corporations will be competent when the other superintendencies do not have the authority to do so. Thus, a subjective and diffuse factor (having residual competence) is replaced by an objective and concrete factor.