Aspects to Consider when Closing a Merger in Venezuela

Venezuela is currently going through a very complex situation in which the climate for doing business has become difficult for all parties involved in any part of the economic process. The regulatory burden for entities doing business in the country is very high, and companies are required to be registered, keep in place records and processes in a vast amount of governmental entities, a fact that requires the commitment of a substantial amount of resources and time for each entity that exists and operates in the country. As a consequence of the foregoing, many businesses that were structured with various legal entities for different reasons, including tax and liability mitigation, have opted to downsize their operations by merging their subsidiaries into one or some few entities, in order to have fewer structures to operate.

The reality described above also permeates into the complexities of successfully completing a merger in Venezuela, where a number of filings must be made in order to perform the legal steps required to close a merger. In such regard, the process  of completing a merger will require proper organization,  planning and will typically  last for approximately 6 months  before it will be completed.

From a legal  standpoint, the decision to merge two companies shall be adopted  in the  shareholders’ meeting, a meeting that would discuss how both entities should be merged. The Articles of Incorporation of the companies often contain special quorum and voting requirements in order to approve a merger, but if the Articles of Incorporation are silent, the decision shall be adopted in a meeting where 75% of the shares representing the total capital is present and with the affirmative vote of at least, half of the shareholders attending the meeting[1].

The companies to be merged shall enter into a “merger agreement” which shall be executed by authorized representatives of both parties. The merger agreement must set forth the terms and conditions of the merger, such as specifications  that could lead to the survival of the entity,  and conditions that could cease the entities’ existence, as well as any other matter that may be relevant. Even though the law does not specifically require it, commercial registries require that the merger agreement  should be notarized.[2]

Financial statements of both companies dated on the date of the merger shall be prepared and presented to the commercial registry together with the notarized merger agreement and the shareholders meetings of both companies approving the merger.

It is important to point out that the registration processes before the Commercial Registries are frequently delayed for many reasons, including the fact that Commercial Registries often request changes to be made  on the documentation that has been presented, to the form in which documents are presented or in the supporting documents that shall be filed. These requirements changes from one Commercial Registry to another. Therefore,  the timing of the merger is an important issue and so, it is very  crucial to go beforehand  to the Commercial Registry  with much anticipation as possible,  so as to understand the requirements established by the Commercial Registry  in which the specific merger documentation will be registered.

Once the shareholders meetings are registered in the Commercial Registry or registries the merger agreement shall be published in an authorized legal publication. In practice, the shareholders meetings approving the merger are also published.

The merger will not be effective until a 3-month period  which will be counted from the date on which the publication previously indicated has been made. The Commercial Code establishes that the merger may be closed before such period if evidence of  payment of the  company’s debts or the approval of all creditors is evidenced. However, this is very unusual since in practice, there are just too many potential creditors for any given company, and the 3-month period is seen in practice as almost mandatory without exception.

During the 3-month period indicated before, any creditor can oppose the merger, which if done, will suspend the merger until the suspension is lifted through a definitive judicial decision.

Once the 3-month period elapses without any opposition from the creditors of the merging companies, the merger may become effective and the surviving company shall assume all rights and liabilities of the company that ceases to exist. In such manner, most practitioners and authors assume the position that the surviving company is the universal successor of the company  which ceases to exist.

Once the merger becomes effective, many notices to all kind of governmental entities shall be made. In such regard, the Tax administration shall be notified of the merger within one month from  the date  the merger became effective. Also, an income tax return shall be filed for the “short” fiscal period of the entity that is extinguished and that will end on the date the entity  ceases to exist.

In addition, all governmental entities in which the company that ceases to exist is registered (such as the social security administration, apprenticeship programs, housing and other parafiscal entities) shall be notified of the merger  so that their records may be properly updated to reflect the surviving entity as successor of the entity that  ceased to exist.

Another matter that shall be dealt with much care is the labour situation of employees of the company that ceases to exist. In such regard, prior to the merger, a strategy and plan shall be decided and implemented setting forth the steps and timing that will be taken vis a vis the employees of the company that will cease to exist. The company shall determine if it will carry out a procedure of notification of “change of employer” where notices of the change of employer are given to both employees of the company that will cease to exist and labour administrative authorities, indicating that the surviving company shall be the new employer of the employees of the company that will cease to exist. Employees that do not wish to continue as employees of the new surviving company may as well leave the company and request severance payment as if the company terminated them.

[1]Article 280 of the Venezuelan Code of Commerce.

[2] Based on an Article 23 of Resolution Number 19 of the Ministry of Interior, Justice and Peace dated January 13, 2014

Reinaldo Hellmund

Reinaldo Hellmund

Senior partner at Rodriguez & Mendoza

Email: [email protected]
Tel: +58 (212) 285 4944

Mr Hellmund specialises in the areas of corporate law, oil and gas, project finance, financing and lending transactions, secured transactions, merger and acquisition foreign investment.

Mr Hellmund has represented several international oil companies in their business in Venezuela, including structuring of association agreements for extra heavy crude oil, gas, pipelines projects and operation agreements. Mr Hellmund has represented lenders, underwriters and project sponsors on several of the most important financing, oil & gas and project finance transactions seen in Venezuela.

Mr Hellmund has participated as counsel to various companies in the restructuring and re-financing of their debt; as counsel to the lenders and sponsors in the structuring and implementation of various financing agreements in Venezuela in the oil and gas sector; as counsel to both buyers and sellers in the acquisition, sale and spin-off of various companies in Venezuela; as counsel in the negotiation of various infrastructure joint venture agreements. In addition, Mr Hellmund actively counsels various clients in their day-to-day operations in Venezuela. On many different oil projects acted as a counsel to the sponsors and the project, which included the negotiation and acquisition of properties, pipelines, project and port facilities including pipeline agreements and EPC’s construction and supply.

Mr Hellmund received his JD from Andrés Bello Catholic University, Venezuela in 1983. He was admitted to the Caracas Bar in 1983.

Miguel Velutini

Miguel Velutini

Junior partner at Rodriguez & Mendoza

Email: [email protected]
Tel: +58 (212) 285 4944

Mr Velutini specialises in the areas of corporate law, oil and gas, project finance, mergers and acquisition, foreign investment, banking and secured transactions.

Mr Velutini has participated as counsel to various companies in the restructuring and re-financing of their debt; as counsel to the lenders and sponsors in the structuring and implementation of various financing agreements in Venezuela in the oil and gas sector; as counsel to both buyers and sellers in the acquisition, sale and spin-off of various companies and divisions of companies in Venezuela; as counsel in the negotiation of various infrastructure joint venture agreements. In addition, Mr Velutini actively counsels various clients in their day-to-day operations in Venezuela.

Mr Velutini received his JD from Andrés Bello Catholic University, Venezuela in 1998 and his LLM from Duke Law School in 2000. He was admitted to the Caracas Bar in 1998.

Carlos Martínez

Carlos Martínez

Junior partner at Rodriguez & Mendoza

Email: [email protected]
Tel: +58 (212) 285 4944

Mr Martinez specialises in the areas of corporate, foreign investment, oil and gas, merger and acquisition, banking and environmental laws and regulations.

Mr Martinez has participated as counsel in several oil and gas projects; as counsel to the lenders and sponsors in the structuring and implementation of various financing agreements in Venezuela in the oil and gas sector; as counsel to both buyers and sellers in the acquisition and sale of various companies in Venezuela; as counsel in several capital market transactions, as counsel in the preparation of environmental compliance protocols for oil, gas and food companies; as counsel in the preparation of civil and commercial contracts. In addition, Mr Martinez actively counsels various clients in their day-to-day operations in Venezuela.

Mr Martinez received his JD from Andrés Bello Catholic University, Venezuela in 1995 and his LLM from Cornell Law School in 2003. He was admitted to the Caracas Bar in 1995. Mr Martinez is a former professor of banking law and regulations at Andrés Bello Catholic University, Venezuela.

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About Reinaldo Hellmund

Email: [email protected]
Tel: +58 (212) 285 4944
Mr Hellmund specialises in the areas of corporate law, oil and gas, project finance, financing and lending transactions, secured transactions, merger and acquisition foreign investment. Mr Hellmund has represented several international oil companies in their business in Venezuela, including structuring of association agreements for extra heavy crude oil, gas, pipelines projects and operation agreements. Mr Hellmund has represented lenders, underwriters and project sponsors on several of the most important financing, oil & gas and project finance transactions seen in Venezuela. Mr Hellmund has participated as counsel to various companies in the restructuring and re-financing of their debt; as counsel to the lenders and sponsors in the structuring and implementation of various financing agreements in Venezuela in the oil and gas sector; as counsel to both buyers and sellers in the acquisition, sale and spin-off of various companies in Venezuela; as counsel in the negotiation of various infrastructure joint venture agreements. In addition, Mr Hellmund actively counsels various clients in their day-to-day operations in Venezuela. On many different oil projects acted as a counsel to the sponsors and the project, which included the negotiation and acquisition of properties, pipelines, project and port facilities including pipeline agreements and EPC’s construction and supply. Mr Hellmund received his JD from Andrés Bello Catholic University, Venezuela in 1983. He was admitted to the Caracas Bar in 1983.