Egypt: Split-Up Of Companies In Egypt

Last Updated: 19 November 2018
Article by Omaima Fawzy

Pursuant to the new Egyptian Company Law No.4 of the year 2018 and its Executive Regulations No.16 of the year 2018 on the amendments of certain Executive Regulation provisions of Joint Stock Companies, Partnerships Limited by Shares and Limited Liability Companies Law No.96 of the year 1982;

Article No.299bis of the Executive Regulation, which 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: is the type in which the shares emerged are owned by the shareholders before the split-up of the company;

Vertical: is the type by which a part of the assets or activities are separated in new company affiliated or owned by the company, the subject-matter 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 decision 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 the regulations and conditions prescribed in Articles Nos.26 &27 of the Executive Regulation.

Article No.299bis: the company board of directors shall be liable for preparing the split-up draft, particularly including the assets and liabilities of the splitting company and the split companies emerged therefrom, to be presented 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 that are belonging to each company which emerged from the split-up. The report issued by the auditor and including a study of valuating and estimating the value of shares and in-kind portions in the splitting company, shall be attached.
  4. Financial statements of the splitting company and the companies resultant 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, and enclosed thereto the auditor's report.
  5. Draft of articles of incorporation and the Articles of Association of the splitting company and companies resultant from split-up in addition to the draft amendment of the splitting company article of association.
  6. Situation of the companies resultant from split-up in terms of listing or continuation of listing in the Egyptian Exchange, and the measure to be taken by the company vis-à-vis the shareholders.
  7. 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 applying such rules.
  8. The agreements related to creditors' rights after the split-up with the splitting company and split companies, and the measures taken by the bondholders of all types.

And in all circumstances, the approval of the Company 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 prescribes a percentage higher than such, provided that split-up resolution must include the following:

"The number of shareholders or partners, their names, and the portion of each one of them in the companies resulting from split-up as well as the rights and liabilities of each of them, and the distribution of the company assets and liabilities among them".

As well, company board of directors may, before presenting the split-up draft before the company extraordinary general assembly, submit the documents of the split-up draft to the Egyptian Authority in order to obtain the opinion of the Authority before the implementation of the draft.

Also, the approval of the Authority is issued on the proceeding with the issuance of the splitting company shares after the amendment and on the proceeding with the issuance of the split company shares, and the commercial register shall be endorsed with the amendment of the splitting company capital, and with the registration of the split companies by virtue of the approval of the Authority. Provided that the shares of the companies resultant from the split-up may be traded immediately after the issuance thereof, unless there are restrictions imposed on the trading of such shares whether in whole or in part.

Legal subrogation by the companies resulting from split-up:

The companies resultant 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. And 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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