Over the past two years, banks such as Ansar, Ghavamin, Hekmat Iranian, Mehr Eghtesad, and Kosar Credit Institution have merged with Bank Sepah. This merger has created uncertainties regarding the rights and obligations of the customers of these banks. To address these uncertainties, it is essential first to clarify the legal nature of this merger. In the following sections, we will delve into this issue in more detail.
Section One: Mergers of Companies and the Role of Shareholders’ Will
The merger of companies is defined in Clause 16, Article 1 of the Law on the Implementation of General Policies of Principle 44 of the Constitution of Iran. According to this clause, a merger is an action whereby several companies dissolve their legal personalities to form a single new legal entity or be absorbed into another legal entity. This process is often carried out to create a larger and stronger organization or structure. Given the legislator’s definition of a merger, it can be concluded that merging companies is a legal act based on the will of the shareholders of the merging companies, as this process requires decision-making and agreement among the shareholders. This decision is made based on thorough examinations and strategic analyses, aiming to create a larger and stronger organization.
Section Two: The Issue of Merging Credit Institutions and Banks
According to Clause A of Article 105 of the Fifth Five-Year Development Plan of the Islamic Republic of Iran and Article 140 of the Sample Articles of Association for Non-Banking Credit Institutions, in the merger process, all rights and obligations, assets, liabilities, and claims of the merging companies are transferred to the absorbing company or the new entity. Additionally, per Accounting Standard No. 19 for Business Combinations (revised in 2005), all business combinations should be accounted for using the purchase method. This means that the acquiring entity, i.e., the absorbing company, recognizes the identifiable assets and liabilities of the acquired entity, i.e., the merged company, at their fair values as of the acquisition date.
According to this standard, a business combination may occur in various forms for legal, tax, or other reasons. The combination can involve the acquisition of ownership interests in shares or partnership interests, or all or part of the net assets of one business by another in exchange for issuing shares, paying cash, or transferring other assets. The combination can be a transaction between the shareholders of the combining entities or between one business entity and the shareholders of another business entity. A business combination may involve creating a new entity to control the combining entities, transferring the net assets of one or more combining entities to another business entity, or dissolving one or more of the combining entities. For example, a detailed review of the notices published in the Official Gazette of the Islamic Republic of Iran, issue number 22449, reveals that the merger of Kowsar Credit Institution with Bank Sepah was executed by transferring all assets, liabilities, claims, and obligations of these two entities.
Therefore, this case can be categorized as “the transfer of net assets of one or more combining entities to another business entity.” According to the information in the notice, all assets, properties, claims, debts, and obligations of Kowsar Credit Institution and Ghavamin Bank were transferred to Sepah Bank at book value, and in return, the capital of these two units was consolidated into Bank Sepah. Additionally, according to the second part of the notice, Bank Sepah’s capital increased to 247,666,843 million rials after the merger. This amount represents the total value of the assets of the merged entities (Kowsar Credit Institution and Ghavamin Bank) that were transferred to Bank Sepah.
Section Three: The Method of Merging Credit Institutions and Banks
According to Clause A of Article 105 of the Fifth Five-Year Development Plan of the Islamic Republic of Iran and Article 1 of the Executive Regulation of Clause “Z” of Article 111 of the amended Direct Taxation Law, the merger of companies can be carried out in one-sided or multi-sided forms. In a one-sided merger, one of the companies retains its legal personality, and the other companies are absorbed into it. In a multi-sided merger, all participating companies lose their legal personalities, and a new company with a new legal personality is created.
The process of merging companies is carried out based on the articles of association of the companies involved and the approval of their extraordinary general assemblies. In the case of merging credit institutions with banks, in addition to the above conditions, approval from the Central Bank of the Islamic Republic of Iran and compliance with the regulations of the Securities and Exchange Organization are required. In other words, there are four key conditions for merging credit institutions with banks: adherence to the provisions of the articles of association, approval by the extraordinary general assemblies, obtaining a license from the Central Bank, and compliance with the regulations of the Securities and Exchange Organization. These requirements are based on Article 139 of the sample articles of association for banks and credit institutions. This sample form, approved by the Money and Credit Council, was communicated to all banks and credit institutions by the Central Bank through circular No. 94/122679 dated 2015/08/04 Accordingly, banks and credit institutions were required to hold extraordinary general assemblies to amend their articles of association in accordance with the mentioned form, which was duly carried out.
In line with the stated content, the legislator has provided a definition of company mergers and specified its special conditions and effects. The merger of credit institutions and banks is carried out after obtaining approval from the Central Bank and with the will and consent of the shareholders of the companies and institutions involved. This merger aims to transfer the assets, properties, claims, debts, and obligations of the merged company at a specified and determined price to the merging company or the newly formed company. The approval of this contract is done by the extraordinary general assemblies of the said companies. Although the merger is a specific legal action based on the will of the shareholders, its manner and effects are under the supervision and control of the legislator and relevant authorities. Additionally, the legislator has announced specific legal restrictions for mergers, indicating that mergers cannot include items that are not legally transferable.
