What is an Amalgamation and the Need for its Strict Application

May 17, 2024 [corporate law, business law]

The misappropriation of the legal parameters of an amalgamation are such that lawyers seek to misrepresent a post-amalgamation corporation for something that it is not, in an effort to achieve an outcome that is not legally permissible, yet may achieve their corporate client’s preferred outcome. Nevertheless, the legislative statutes do provide considerable precision as to the legal effects of amalgamation, which have been further clarified by the Supreme Court of Canada.

An amalgamation is a corporate merger of two or more corporations continued as a fused corporation (but not a new corporation). Just as corporations are created and governed by the jurisdiction’s business corporations legislation, so too is the amalgamation process that results in their continuance as a fused post-amalgamation corporation. All the assets and liabilities, contracts and responsibilities, of each of the pre-amalgamation corporations continue with this fusion, nothing is lost or left behind; and without the need of far more complicated transferences or conveyancing.

As the Supreme Court of Canada stated in the seminal case on amalgamations, R. v. Black & Decker Manufacturing, an amalgamation “ensur[es] the continued existence of the constituent companies.” Canada’s highest Court went on to state that: “[W]hatever the motive, the end result is to coalesce to create a homogeneous whole. The analogies of a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands have been suggested by others.”

An amalgamation can take one of three forms, based on the relationship between the pre-amalgamation corporations:

1. A long-form amalgamation between unrelated corporations, which requires each of the pre-amalgamation corporations to sign an amalgamation agreement and submit it for approval by their respective shareholders.

2. A vertical short-form amalgamation which entails the amalgamation of a parent corporation with one or more wholly-owned subsidiary corporations.

3. A horizontal short-form amalgamation which amalgamates two or more wholly-owned subsidiary corporations of the same parent corporation.

In each case, the pre-amalgamation corporations are fused together and form the post-amalgamation corporation, such that there is but a single corporate entity.

For as the Supreme Court of Canada concluded: “The effect of the statute, on a proper construction, is to have the amalgamating companies continue without subtraction in the amalgamated company, with all their strengths and their weaknesses, their perfections and imperfections, and their sins, if sinners they be.”

As such, it is the purest and most complete merger of corporations, given that nothing is lost and everything is carried forward, be that good, bad or ugly, and there can be some very ugly aspects that one pre-amalgamation corporation might confer on the entirety of the post-amalgamation corporation. The effect of an amalgamation is “that of blending and continuance as one and the selfsame company” … “which is the very antithesis of the notion that the amalgamating companies are extinguished or that they continue in a truncated state; ...”

Anything less has been rejected by the Supreme Court of Canada, as is evident from its decision in British Columbia Hydro and Power Authority v. British Columbia (Environmental Appeal Board). It is a position that was necessitated so as to preclude the improper application of corporate amalgamations to eliminate liabilities incur by the predecessor corporations that would be contrary to the rule of law and the administration of justice.

The amalgamation is a product of statute, meaning that it must conform to the specific procedures set out in the applicable business corporations statute, as well as utilizing the appropriate government forms and filings to effectuate the amalgamation. An amalgamation, and the resultant post-amalgamation corporation, is very precise in its nature and cannot be portrayed as something that it is not, as its legal characteristics and operation is incapable of modification, with its outcomes being clearly established by the law.

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