EU ​Cross ​Border ​Mergers

EU Cross Border Mergers

Published by Christina Mavronicola in International Law · 11 May 2021

INTRODUCTION

The law applies to the merger of limited liability companies formed under the law of a Member State, having their registered office, central administration or main place of business, within the community, provided that at least two of these companies are governed by the law of different Member States.

As a general rule, each merging company is governed by the provisions of its national law applicable to domestic mergers.

A Cross Border Merger can only be performed if this is permitted according to the provisions of the national law of the Member State where each company is incorporated.

Any Cyprus Company may take part in a Cross Border Merger, except companies limited by guarantee or companies under liquidation.

DEFINITION

The “merger” may be effected in one of three ways, namely:

the transfer of all the assets and liabilities of one company (the company shall be dissolved but will not be liquidated), to another existing company (the acquiring company), in exchange for the issue to its members, of securities or shares representing the capital of that other company, and if applicable, a cash payment not exceeding 10% of the nominal value (or of the accounting par value of those securities or shares);
the transfer of all the assets and liabilities of two or more companies (the companies shall be dissolved but will not be liquidated), to a new company formed in exchange for the issue to their members of securities or shares representing the capital of that new company and, if applicable, a cash payment not exceeding 10% of the nominal value (or of the accounting par value of those securities or shares; or
the transfer of all the assets and liabilities of one company (the company shall be dissolved but will not be liquidated) to the company holding all the securities or shares representing its capital

MERGER PLAN

The Directors shall draft and approve the proposed terms of the merger (“The Merger Plan”) with the following particulars:

form, name and registered office of the merging companies and the corresponding information for the company resulting from the cross – border merger;
ratio applicable to the exchange of securities or shares representing the company capital and the amount of any cash payment, if applicable;
the terms for the allotment of securities or shares representing the capital of the economy resulting from the cross-border merger;
the likely repercussions of the cross-border merger on employment;
the date from which the holding of such securities or shares representing the company capital will entitle the holders to share in profits, as well as any special conditions affecting that entitlement;
the date from which the transactions of the merging limited liability companies will be treated for accounting purposes as being those of the limited liability company resulting from the cross-border merger;
the rights conferred by the limited liability company resulting from the cross-border merger on members enjoying special rights or on holders of securities other than shares representing the company capital, or the measures proposed concerning them;
any special advantages granted to the experts who examine the draft terms of the cross-border merger or to members of the board of directors of the supervisory or controlling organs of the merging limited liability companies;
the memorandum and articles of association of the company resulting from the cross-border merger;
where appropriate, information on the procedures by which arrangements for the involvement of employees in the definition of their rights to participations in the limited liability company resulting from the cross-border merger are determined;
information on the evaluation of the assets and liabilities which are transferred to the limited liability company resulting from the cross-border merger;
dates of the merging companies’ accounts used to establish the conditions of the cross-border merger.

FILING AND PUBLICATION

The Merger Plan shall be presented to a general meeting of the Shareholders for approval. The date of such a general meeting should be such that the Merger Plan is filed with the Registrar of Companies in Cyprus and published at least one month before the date of the Meeting.

The Directors of the merging companies shall file the Merger Plan with the Registrar of Companies in Nicosia which will be published by the Registrar in the Official Gazette of the Republic of Cyprus, at least one month before the General Meeting of the Cyprus company, which is to decide thereon.

DIRECTORS’ REPORT

The Directors of each of the merging companies must draw up a report intended for their members, explaining and justifying the legal and economic aspects of the cross-border merger and the implications of the cross-border merger for members, creditors and employees.

The report shall be made available to the members and to the representatives of the employees or, where there are no such representatives, to the employees themselves, not less than one month before the date of the General Meeting.

EXPERT REPORT

An independent expert report should be drawn up for each merging company and again, it should be made available to the members of the company not less than one month before the date of the General Meeting. Such an expert may be either a natural or a legal person appointed by the court, upon a request by the parties, to examine the Merger Plan and the Directors’ Report.

The expert report should include at least the following:

indicate the method or methods used to arrive at the share exchange ratio proposed;
state whether such method or methods are adequate in the case in question, indicating the values arrived at using each such method and giving at the same time, an opinion on the relative importance attributed to such methods in arriving at the value decided on;
describe any special valuation difficulties which have arisen.
No Expert Report is needed where the all the members of the companies involved agree the same.

THE GENERAL MEETING

The General meeting of the merging companies shall consider the reports presented and shall decide on the approval of the Merger Plan. The decision of the General Meeting shall be binding on the company resulting from the merger and all its members.

COURT PROCEDURE

Upon approval of the cross-border merger by the General Meeting, each merging company must make an application to the competent court and request the issuing of a certificate confirming that all necessary procedures have been followed by the company.

The Cypriot company needs to apply to the Court and request the issuing of a certificate conclusively attesting to the proper completion of the pre-merger acts and formalities. Once the Court is satisfied that all the procedures have been complied with it will issue without delay the pre-merger certificate which shall be valid for six months. A similar pre-merger certificate must also be obtained by each non-Cypriot company in its own jurisdiction.

Within six months from the issue of the pre-merger certificate, a second application must be filed to the Court accompanied by:

the local pre-merger certificate for each Cypriot merging company;
the foreign pre-merger certificate for each non-Cypriot company;
(the common draft terms of the cross-border merger as approved by the general meetings of shareholders of each participating company.

If the District Court is satisfied as to the legality of the procedures followed, it will issue a Court Order approving completion of the merger and setting the exact date on which the cross-border merger is deemed to take effect

REGISTRATION & PUBLICATION OF THE COURT ORDER FOR THE COMPLETION OF THE MERGER

Each merging Cypriot company shall submit an official copy of the Court Order approving and certifying the completion of the merger to the Registrar of Companies for registration and publication in the Official Gazette of the Republic.

Upon receipt of such a copy the Registrar shall notify the Registrar of the Member State of each non Cypriot merging company accordingly.

If the certificate for the completion of the merger is to be issued by the authority of another member state then, upon receipt of the relevant notice, the Registrar of Companies in Cyprus shall effect the registration and publication of this Order in its records and the Official Gazette of the Republic.

EFFECT OF THE MERGER

The Cross Border Merger takes effect from the date set by the Court in the Order for the completion of the merger.

If the certificate for the completion of the merger is to be issued by the authority of another member state then the cross border merger shall commence to take effect on the date determined by the national legislation.

SIMPLIFIED FORMALITIES

There are certain procedures which shall not be applicable when the cross border merger by acquisition is carried out by a Cypriot company which holds all the shares and all other securities conferring the right to vote at General Meetings of the company or the companies being acquired, or carried out by a limited liability company of another member state which holds all the shares and all other securities conferring the right to vote at General Meetings of the company or the companies being acquired.

These procedures are:

The draft terms of the cross-border merger does not have to include:

the ratio applicable to the exchange of securities or shares representing the company capital and the amount of any cash payment, if applicable;
the terms for the allotment of securities or shares representing the capital of the economy resulting from the cross-border merger;
the date from which the holding of such securities or shares representing the company capital will entitle the holders to share in profits, as well as any special conditions affecting that entitlement.

An independent expert report shall not be required;
The members of the company being acquired shall not become members of the acquiring company;
The General Meeting of each of the merging Cypriot companies which decides whether to approve the common draft terms shall not take place.

CONSEQUENCES

A cross-border merger shall have the following consequences:

all the assets and liabilities of the company being acquired or of the merging companies shall be transferred to the acquiring company;
the members of the company being acquired or of the merging companies shall become members of the acquiring company;
the company being acquired or the merging companies shall cease to exist.

The limited liability company resulting from the cross-border merger shall carry out the formalities that may be required under the Companies Law or on the basis of legislation governing any of the merging limited liability non-Cypriot companies with respect to the right to object against third parties before the transfer of certain assets, rights and obligations offered by the merging limited liability companies.

The rights and obligations of the merging limited liability companies arising from contracts of employment or from employment relationships and existing at the date on which the cross-border merger takes effect shall be transferred to the limited liability company resulting from the cross-border merger on the date on which the cross-border merger takes effect.

The Companies Law also makes provision for the following:

the limited liability company resulting from the cross-border merger shall be subject to the legislation in force concerning employee participation, if any, in the Member State where it has its registered office.
the limited liability company resulting from the cross-border merger may buy out the shares of an existing shareholder who dissent to the cross-border merger.
where a cross-border merger by acquisition is carried out by a Cypriot company which holds all the shares and all other securities conferring the right to vote at general meetings of the company or companies being acquired.

This publication has been written in general terms and is intended to be seen as a brief summary of the issues surrounding cross-border mergers. We recommend readers to contact us for professional advice regarding any query they may have. This publication should not be relied on as a substitute for such advice.