PARAGUAY Trends and Developments Contributed by: Mauro Mascareño, Carlos Vargas and Rodrigo Gómez Sánchez, Mascareño Vargas – Asesores
In this article, the authors address the most frequently used structures, comparing them to other, more traditional ones and discussing the advantages and disadvantages of each. Mergers Currently, mergers are being increasingly utilised to strengthen companies’ assets and maintain their competitiveness in the market, marking a clear break from the past. It is important to note that in Paraguay, most companies are family- owned, although a notable increase in multi- national entities and entrepreneurs has been observed. This combination of influences, and the growing professionalisation of senior execu- tives, explains the recurrent adoption of mergers as an option for business optimisation. In fact, several financial institutions have chosen to merge with others to avoid losing competitive- ness, as have companies in the telecommunica- tions sector and the food industry. It is common for companies within the same economic group to resort to this structure to consolidate assets or achieve greater opera- tional efficiency or an enhanced financial image. The merger of companies constitutes a form of business reorganisation provided for in civil and tax legislation. From the existing regulations, two types of merg- ers can be distinguished: • proper merger – through this type of merger, two or more companies dissolve to create a new company; the pre-existing compa- nies disappear, and a new one is created to replace them; and • merger by absorption or acquisition – through this type of merger, one or more compa-
nies dissolves to be absorbed by another that survives, and the shareholders of the absorbed company become shareholders of the absorbing company. In practice, merger by absorption is the usual form, where a company that has common share- holders with another absorbs the latter – which usually has smaller assets or, in some cases, specific regulatory licences – after the require- ments have been fulfilled. In this way, an economic group could for exam- ple optimise its economic resources by integrat- ing companies; both human and administrative resources can be leveraged for a single entity, thereby reducing operational redundancies and costs. Governance can be optimised through restructurings of the board of directors and trustees, and of shareholder agreements, among other things. However, since the company belongs to the shareholders, and its assets act as a guarantee for the fulfilment of obligations assumed before creditors, compliance with specific requirements is necessary in the context of a procedure aimed at protecting the right of creditors to justifiably oppose the operation. In this sense, in addition to calling extraordinary shareholders’ meetings to decide on the merger, approve the corre- sponding agreement and formalise the opera- tion, a special balance sheet must be prepared showing the situation before and after the merg- er. This balance sheet must be made available to creditors for 30 days. A merger is a procedure that requires the com- pletion of various formalities, documents and registrations. In practice, it can take between four and six months, not including special regu- latory approvals or cases involving controversial
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