4-Way Amalgamation in Canada

Situation:

Due to a corporate acquisition, Client had a redundant entity in Canada which included employees, manufacturing and sales activities.  The manufacturing activities were planned to be moved to a newly created entity.   Simultaneously, the remaining entity was merged with three other entities, creating NewCo.   This approach was most tax-efficient while also simplifying operational processes and reducing administrative costs. 

Kestrel Partners Engagement:

A project manager was assigned to manage the project from end to end.  Internal team members included representatives from the following departments:  Tax, Payroll, Accounting (Business Unit and Consolidations Accounting), Real Estate, Treasury, IT, and Record Retention.   Key considerations were a smooth transition for all employees to NewCo and meeting all tax objectives.  After receiving a high-level plan form the corporate tax team that laid out key steps of this 4-way merger, associated asset transfers, etc., Kestrel Partners (‘KP’)  operationalized this plan using its Legal Entity Transition methodology.  The resulting work plan was used to project-manage the various aspects of this transition.   The following paragraphs highlight objectives and aspects that were under the remit of KP for each of the tracks.

Track

Objectives

Payroll

1.   Avoiding restart of CPP and EI (the equivalent to FICA in the US)

2.   Verification of target entities for all employees;

3.   Set up of all employee data in ERP system

4.   Addressing benefit differences and transition of balances between the entities to be merged;

5.   Evaluating scope and costs/benefits of ERP system modifications to enable automatic processing of hourly workers’ payroll.

6.   Ensuring all regulatory registrations are complete and accurate (e.g. business no., WSIB, EHT)

7.   Ensuring payroll set up and successful execution through first paycheck from merged entity.

Purchasing

1.     Ensuring  timely set up of vendors and business partners in new ERP system

Legal Entity

1.     Assess dependencies to other corporate entities based on existing inter-company arrangements and shareholdings;

2.     Executing asset transfers and relating accounting entries;

3.     Optimizing tax credits

4.     Creation of new legal entity for manufacturing and related ERP system set up;

5.     Commercial registrations (Customs, business number, GST and HST numbers, etc.)

6.     Review and approval of accounting flows by tax team;

7.     Establishing of transfer pricing agreement;

 

Finance/ Accounting

1.     Freezing of P&L and B/S activities prior to merger date;

2.     Coordinate transitioning from old to new ERP system;

3.     Transfer of assets and liabilities;

4.     Budget transfers;

Facilities

1.     Manage building lease transitioning;

2.     Manage transitioning of contracts for service providers

IT

1.     Set up of SAP entity with all required modules and testing of functionality;

2.     Managing the stocking process (inventory, vendors, etc.) prior to go-live;

3.     Shutdown of redundant plant;

4.     Management of IT costs and cost recovery processes

Treasury

1.     Bank account set up with appropriate signature authority and funding for operations.

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