The last number of years have seen a significant rise in consolidation within the Irish insurance broker market, with 46 deals in this sector having been reported to Merger Market for the period 1 January 2021 – 31 December 2022.
Following multiple acquisitions, firms are now turning their focus to entity rationalisation and integration projects ("R&I Projects").
We have prepared this roadmap to assist clients in understanding the key considerations to be taken into account when planning and implementing R&I Projects including:
- identifying the most suitable legal mechanism to rationalise the corporate structure;
- regulatory engagement with the Central Bank of Ireland ("CBI") in relation to project;
- the key implementation steps involved; and
- post-completion requirements.
As a regulated sector, it is important that Irish broking groups fully consider both the corporate and regulatory aspects of an R&I Project at an early stage in the planning process to ensure a smooth and successful outcome.
Stage 1 Planning
- Identify Transfer Mechanism
As a first step in any R&I Project, it is necessary to identify the target corporate and operating structure for the group and most effective legal mechanisms to achieve this.
As the majority of intermediaries are established as limited companies and can avail of the domestic merger regime, this note principally considers the requirements for a domestic merger in light of the advantages and efficiencies this process would bring for an R&I Project from both a corporate and regulatory perspective. Where an intermediary is established as another form of company, or an asset transfer is the preferred mechanism, different requirements may apply.
Domestic Mergers
Domestic mergers are increasingly considered an efficient and attractive entity consolidation or rationalisation tool for Irish domiciled subsidiaries.
A domestic merger involves the merger of two or more Irish limited companies, with the all the contracts, assets, liabilities and employees of the merging company (the "Transferor") automatically transferring to the other company (the "Successor") by operation of law. As part of the merger, the Transferor is dissolved without going into liquidation, which removes the requirement to carry out a members' voluntary liquidation ("MVL").
A domestic merger can be carried out either by way of a merger by absorption or a merger by acquisition. The distinction between these is that:
- in a merger by absorption scenario, the Successor must be the parent company of the Transferor, holding all shares representing the share capital of the Transferor; whereas
- n a merger by acquisition scenario, it is not necessary for the
Successor to be the parent company of Transferor. However, a merger
by acquisition will involve the issuance of shares in the Successor
to the members of the Transferor (with or without additional cash
payment).
A domestic merger can be effected by way of the summary approval procedure or a court approved order, each of which are discussed in further detail below.
Asset Transfer
As an alternative to a domestic merger, firms could consider an asset transfer process as a means of integrating various regulated businesses. This option allows for the transfer of select assets and liabilities only, which may be advantageous if, for one reason or another, it would be preferable to carve out certain assets and liabilities of the Transferor. However, an MVL process would be required if the intention is to ultimately dissolve the Transferor entity post-transfer, which would lengthen the overall project timeline.
In addition, carving out certain liabilities may impact on any post-transfer regulatory obligations such as maintaining run-off professional indemnity insurance cover or surrendering the authorisation of the Transferor to the CBI.
- Prior Engagement with the Central Bank
We would recommend engaging with the CBI at an early stage in relation to the R&I Project. This presents an opportunity to provide the CBI with a general overview of and rational for the project, proposed implementation timelines, the post-project organisational structure and any other pertinent information such as post-completion licence surrenders.
A key focus of the CBI will be on ensuring appropriate consumer protection measures are in place. Therefore, it is important that prior to engaging with the CBI due consideration has been given to the policyholder communication process.
Prior engagement at the outset of the project should ensure that the CBI is fully appraised of the overall project and allow for any potential regulatory concerns to be identified and addressed at an early stage.
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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.
