Split-up of companies

Pursuant to the Egyptian Company Law No. 4/2018 and its Executive Regulations No. 16/2018 on the amendments to some provisions of the Executive Regulations No. 96/1982 for Joint Stock Companies, Partnerships Limited by Shares and Limited Liability, Article No. 299 bis of the Executive Regulation, stipulated the essence and kinds of split-up, “Companies may be split into two companies or more where each company emerged from such split-up process, shall have a separate juristic personality once it is registered at the Commercial Registry in Egypt. Split-up is the separation between the company and its assets or activities”.

Split-up Types in Egypt are:

Horizontal: It is the type in which shares held by shareholders appeared before the split-up of the company;

Vertical: It is the type in which a part of the assets or activities are split-up in new subsidiary or a new affiliated company, which is the subject of the split-up.

Within the split-up process, the assets and liabilities of the company in Egypt are valuated according to the book value. In special cases and after obtaining the approval from the Authority, valuation may be carried out on other bases according to controls determined by the Authority. Shareholders’ Equity in terms of the company capital, reserves and retained earnings shall be split according to the resolution issued by the extraordinary general assembly or the group of partners, as the case may be.

The company, which continues its business, having the same juristic personality, and from which a company emerged, shall be called “the Splitting Company”, while the emerged company shall be called “the Split Company”.

The split-up draft shall be carried out in specific methods; either with the same company assets or shares, or by amending the shares number or the share nominal value, or by issuing new shares for “the Split Company” in the light of what shares are owned by “the Splitting Company”; however, in the last case, the valuation method issued from the committee competent in evaluating the in-kind portions, shall be carried out according to the regulations and conditions prescribed in Articles No. 26 and 27 of the Executive Regulation.

* The most important point of these conditions:

Hiring a real estate expert accredited to the Egyptian Stock Exchange to inspect the assets in kind and estimate their market value. For example, inspecting the plots of land and buildings on which a tourism project is established and estimating its market value after the split-up decision, which results in raising the value of land and buildings and all its facilities for a high value that leads to raising the in-kind shares to twice their value (if estimated less than that at the time of incorporation). Then comes the stage of inspection by the Economic Performance Committee.

Article No. 299 bis provides that: the company board of directors shall be responsible for preparing the split-up draft, particularly including the assets and liabilities of the splitting company and the split companies emerged therefrom, which include the following data, for presentation to the extraordinary general assembly or the group of partners, and which includes the following data:

1. Split-up reasons;
2. Split-up method of assets, liabilities and the shares nominal value of the emerged companies;
3. The detailed draft, particularly including assets and liabilities of each of the companies resulting from the split-up, accompanied by a report in the opinion of the auditor;
4. The default financial statements of the splitting company and the companies resulting from split-up on the basis of assets, liabilities and shareholders’ equity in addition to the revenues and expenses of activities subject of the split-up for two years before the split-up, accompanied by a report of the auditor’s opinion;
5. Draft of articles of incorporation and the Articles of Association of the splitting company and the companies resulting from split-up in addition to the draft amendment of the splitting company article of association.
6. The position of the companies resulting from split-up in terms of registration or continuation of registration in the Egyptian Stock Exchange and the action taken by the company towards the opposing shareholders;
7. A memorandum including the opinion of the company legal advisor, denoting the extent to which the split-up is compatible with the applicable legal rules as well as the extent to which the company complies with all due legal procedures;
8. The agreements related to creditors’ rights after the split-up with the splitting company and split companies, and the measures taken towards the bondholders of all types.

In all cases, the approval of the Company’s Extraordinary General Assembly or group of partners, as the case may be, on the split-up shall be issued by a majority representing three quarters of the capital shares, unless the company’s articles of association stipulate a higher percentage than that, provided that split-up resolution must include the following:

“The number of shareholders or partners, their names, and the percentage of their ownership in the companies resulting from split-up as well as the rights and liabilities of each of them, and the distribution of the company’s assets and liabilities among them”.

Similarly, the company board of directors may, before presenting the split-up draft before the company’s extraordinary general assembly, submit the documents of the split-up draft to the General Authority for Investment, GAFI, in order to obtain the opinion of the Authority before the implementation of the draft.

The approval of the Investment Authority shall be issued on the procedures for issuing the shares of the splitting company after the amendment and on the procedures for issuing the shares of the split companies. The commercial register shall approve the amendment of the capital of the splitting company, and the registration of the split companies based on the approval of the Authority, provided that the shares of the companies resulting from the split-up are traded immediately after the issuance thereof, unless there are restrictions imposed on the trading of such shares in whole or in part.

Legal subrogation by the companies resulting from split-up:

The companies resulting from split-up shall act as successors of the “Splitting Company” and shall legally subrogate it in relation to the rights and liabilities thereof, and within the limits of the part devolving thereto from the company subject of the split-up according to the split-up resolution. Also, the split-up shall not result in any detriment to the rights of the creditors and holders of bonds and financing instruments issued by the company before the split-up. In addition, in order for the split-up to be valid and enforced, an approval shall be obtained from the creditors and the holders of bonds and instruments.

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