Presentation on theme: "EU Company Law – Mergers, Divisions and Cross-Border Mergers"— Presentation transcript:
1EU Company Law – Mergers, Divisions and Cross-Border Mergers Doc dr Tatjana Jevremović Petrović
2Introduction Directives 3rd Company Law Directive on national mergers6th Company Law Directive on national divisionsCross-border Mergers DirectiveSimilar legal problems and provisions in all documentsProcedure of Mergers/Divisions:Preparatory actsAdoption of decision on merger/divisionEffects, Nullity and other issuesEuropean rules and national regulation
3Introduction History of adoption of Directives First ideas: Statute for a SE (1970) and Proposal for a Convention on cross-border mergers (1973)Third Company Law Directive on national mergers of public limited liability companies (1978)First Draft included mergers and divisions, separate document for divisions: Sixth Company Law Directive on divisions of public limited liability companies (1982)Both amended 2007 and 2009Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011 concerning mergers of public limited liability companies
4IntroductionUnsuccessful regulation of cross-border mergers for years.Harmonization of mergers on national level – to make harmonization on international level easier.After the adoption of 3rd and 6th Directives in many national laws mergers were common in practice, unlike other laws (UK) – other instruments with similar purposesAdoption of the Cross-border Mergers Directive of limited liability companies (2005) (not 10th Dir any more) after the adoption of the Statute of the SE and Directive on the employee participation in the SE (2001)
5IntroductionCross-border Mergers for years symbolized non-efficiency of EU Company Law, together with SE and other company mobility issues.Reason for the regulation of mergers: economic benefits – efficiency, competitiveness.
6Provisions of the Directives Mergers – harmonization in all MSDivisions – only when MS already has provisions on this issue (does recognize divisions)Terms mergers and divisions defined and harmonized by Directive provisions
7Provisions of the Directives Merger is the operation where one or more companies arewound up without going into liquidation andtransfer to another/new company all their assets and liabilitiesin exchange for the issue to the shareholders of the company/companies being acquired/cease to exist of shares in the acquiring company and cash payment, if any, not exceeding 10% of the nominal value of the shares, or where they have no nominal, their accounting par value.Merger by acquisition/formation of a new company
8Provisions of the Directives Division is the operation,whereby after being wound up without going into liquidationa company transfers to more than one company all its assets and liabilitiesin exchange for the allocation to the shareholders of the company being divided of shares in the company receiving contributions as a result of the division and possibly a cash payment not exceeding 10% of the nominal value of the shares, or where they have no nominal, their accounting par value.Division by acquisition/formation of a new company/combined these two options
9Provisions of the Directives (terminology merger – division) Merging companies – companies involved in a divisionCompany being acquired – company being dividedAcquiring company – each of the recepient companies
10Mergers Definition of merger One or more companies cease to exist Universal transfer of all assets and liabilities (ipso jure) – universal successionExchange of shares - shareholders of company being acquired become shareholders of the acquiring/new company
11(Dis)advantages of mergers One administrative body, one centre of managementCompetitivenessUniversal successionNo continuous minority shareholdersNo double taxationProfit/loss spreading in the unique structureAccess on a big markets
12(Dis)advantages of mergers One or more companies cease to existMembers of management lose their positions or employmentBigness is badnessBusiness secrets are being revealedHard to determine exchange ratio of the sharesIrreversible operationChange of applicable law (cross-border mergers)Competition linked problemsTax consequences
13Cross-border mergersMerger where companies involved are regulated by at least two different legal systems (two applicable laws).Stricto sensu no change of applicable law – but consequences are the same.Before Directive: in national laws same position as if it was change of applicable law (where company is being acquired – not permitted in Germany, France, Belgium)
14Cross-border mergersProblems in PIL – cumulative application of all national laws concerned (sometimes opposite provisions)PIL issues:Change of applicable lawApplication of national law: cumulative or distributiveFor cross-border mergers all interested national laws must:Allow cross-border mergerHave common system for this operation – legal nature, conditions.Other issues – protection of certain rights, procedure – distributive application of national rules.
15Cross-border mergers3rd and Cross-border mergers Directives created common system for mergers in all national laws, or adopted some special rules where distributive national law application is problematicCross-border mergers Directive also made this operation possible, although same resulted from the ECJ Sevic Case.
16Company’s nationality – cross-border mergers Companies formed in accordance with the law of the MS and having its registered office, central administration or principal place of business (Art. 54 (ex. 48)) within the Community, provided at least two of them are governed by the laws of different MS.This criteria may lead to circumvention of laws, therefore rights for MS to oppose the mergers of its own nationals on the ground of public interest.
17Forms of companiesNational mergers and divisions – only public limited liability companies, cross-border mergers for all limited liability companies (provided it is allowed under national law).Problems with different national law treatment of different company forms:merger is possible when all relevant laws allow merger for all company types concerned.Reason for wider application of Cross-border mergers Directive – non-existence of SPE, as well as interpretation of the right of establishment by the ECJ
18Preparation of merger: Draft terms of merger Drawn by all companies involved in writingObligatory contents
19Preparation of merger: Draft terms of merger Draft terms of merger shall include at least:(a) the type, name and registered office of each of the merging companies;(b) the share exchange ratio and the amount of any cash payment;(c) the terms relating to the allotment of shares in the acquiring company;(d) the date from which the holding of such shares entitles the holders to participate in profits and any special conditions affecting that entitlement;(e) the date from which the transactions of the company being acquired shall be treated for accounting purposes as being those of the acquiring company;(f) the rights conferred by the acquiring company on the holders of shares to which special rights are attached and the holders of securities other than shares, or the measures proposed concerning them;(g) any special advantage granted to the experts and members of the merging companies' administrative, management, supervisory or controlling bodies.For divisions: allocation of the assets and liabilities but for non allocated assets: proportionality, non allocated debts: joint and several liability of all companies
20Preparation of merger: Draft terms of merger For Cross-border mergers – cumulative application of all national laws concerned (both content and legal form of draft terms of merger).Legal form – in writing plus national law provisions (certification – if this is the case in cross-border merger, than it must be done for all – cumulative application of laws – stricter law applies)Publication for every company according to its own national law.
21Preparation of merger: Written reports Written report by administration or management of each company – explanation of legal and economic details of merger (aimed to protect shareholders)Written report by independent expert, acting in the interest of shareholdersAppointed or approved by judicial or administrative authorityOne for all companies – single report possibleNew amendments allow companies not to have this report
22Shareholder protection Most important part of the 3rd, 6th and Cross-border Mergers Directive provisionsAll preparatory phase documents serve for their protection.Right to be informed on a planned mergerInformation and documents availableInformation during general meetingRight to obtain free copies...
23Shareholder protection: GM approval General meeting approval of the draft terms of mergerNecessary for the merger to be validby general meeting of each of the participating companies.Voting on draft terms of merger and alteration of the articles of association.Majority determined by national law, but no less than ⅔ votes attached to shares or subscribed capital (or simple majority if half of the subscribed capital is represented)
24Shareholder protection: GM approval Decision by each class of shareholders.In the case of division if shares of the allocated companies are allocated otherwise than in proportion to their right in the capital, possibility for minority shareholders to have their shares being purchased.Possibility not to hold general meeting in the acquiring company (provided some conditions are met)
25Shareholder protection Other shareholders rights (application of national law provisions):Court’s control of the merger procedureCourt’s control of the exchange ratioShareholders rights: payment in cash (they remain shareholders but receive also some cash payment)Shareholders rights: their shares are bought by company (they cease to be shareholders) – droit de retrait
26Shareholder protection: Cross-border mergers A Member State may adopt provisions designed to ensure appropriate protection for minority members who have opposed the cross-border merger.Determination by court of the exchange ratio after adoption of the merger by general meeting (German and Austrian law)Shareholders right of their shares being purchased (right of retreat/sell out right) for dissenting shareholders not regulated by Directive provisions (questionable whether is allowed under “special protection of shareholders” rule)
27Creditor protectionWeakest (un)regulated issue in Merger/Cross-border Merger DirectiveTransfer of debts without creditors consent3rd Directive – application of national law rules with “adequate system” of their protection (especially claims that antedate publication of the draft terms which are not fallen due)Pledge, mortgage, personal guaranteesWhere financial situation of the merging companies makes protection necessary, and there is no any other safeguardsIn any event, Member States shall ensure that the creditors are authorized to apply to the appropriate administrative or judicial authority for adequate safeguards provided that they can credibly demonstrate that due to the merger the satisfaction of their claims is at stake and that no adequate safeguards have been obtained from the company.Coordinated with 2nd Company Law DirectiveMinimal creditor protectionDifferent protection for creditors of the acquiring/company being acquired possible
28Creditor protection – national provisions A priori protection (France) – before merger is completedUsually after publication of the draft terms of merger within 30 daysRight to demand claims, although not dueA posteriori (Germany) – right to demand safeguards after merger becomes effective (6 months)Both systems don’t prevent merger procedure to take place, except in some national laws (Italy)
29Creditor protection – cross-border mergers Cross-border merger might result in absence of creditors protection – therefore usually protection a priori is introduced (discrimination issues)Based on Cross-border Merger Directive provision of “protection of creditors, taking into account cross-border nature of the merger” – light provisions of creditor protection.
30Creditor protection in the case of division Special rule for creditor protection in the case of division – joint and several responsibility of all recipient companies (may be limited to net assets allocated to that company), unless otherwise agreed by creditors (judicial supervision of the division procedure and creditors meeting with ¾ votes)Maximum creditors protection by joint and several responsibility of all recipient companies
31Protection of other persons involved Same protection for debenture holders, holders of other securities than sharesFor convertible securities maximum protection – same rights in acquiring company
32Control of the merger procedure First Directive: legality and form of certain actsPreventive supervision (usually by court)Later intervention by notary who certifies legality of the procedure/actControl of the merger – duality:Preventive: judicial or administrative authority (France, Germany (with certification as well)Certification by notary in due legal form (if there was no preventive control or not for all merger acts) – Italy, UK (special rules – court decides not only on the legality, but fairness of merger as well).
33Control of the cross-border merger procedure Substantial rules introduced in Cross-b.m. Dir.Preventive and post merger control for each company by its national rulesPre merger control – competent authority issues a certificate of the completion of acts and procedures.Control of the competent authority in the MS of the acquiring company after merger is completed
34Control of division procedure Special rule on division under the supervision of a judicial authorityNon-application of certain rules, aimed at creditor and shareholder protection
35Date on which merger takes effect Regulated by national lawWhen merger is registered – GermanyWith last general meeting approval (France, Belgium)Court’s decision (UK)Certification by notary (Holland)In cross-border merger introduction of conflict-of-law rule: national law of the acquiring company determines this moment, but not before control of the legality of the merger was completed
36Publication and effects of the merger Publication in accordance with the 1st Company Law DirectiveEffects – harmonized by 3rd Company Law Dir. by introduction of the universal succession regime (transfer of all assets and liabilities)Transfer of all assets and liabilities (including intuitu personae contracts) from company being acquired to acquiring companyShareholders of the company being acquired become shareholders of the acquiring companyCompany being acquired cease to exist
37Civil liabilityCivil liability of administrative/management members and experts to shareholdersintroduced for the protection of shareholderstort liability
38Nullity of mergers/divisions Maximum protection by the 3rd Company Law Dir.Ordered by court’s judgmentOnly if there was no controlOnly 6 months after merger becomes effectiveOnly if it’s impossible to remedyDecision on nullity must be published according to 1st Company Law DirectiveFor cross-border merger nullity is not possible after merger takes effect (double control – no need for nullity)
39Simplified merger cases Acquiring company holds 90% or more of the shares of company being acquiredReports need not to be writtenGeneral meeting decision not necessary in acquiring companyAcquiring company holds 100% of the shares of company being acquiredSome rules don’t applyRules concerning exchange of shares don’t apply (no real merger)
40Employee protectionPolitical issue, resolved in 2000 on the Nice Summit of the European CouncilNot individual protection or work contracts but their right to be voted in management or control organs, or right to vote for persons in these organs.Obligatory participation: Germany, Denmark, Sweden, Finland, Holland, Luxemburg, Austria, Czech Republic, Hungary, Slovakia and SloveniaParticipation in public companies only in France, Spain, Portugal, Greece, Malta, Ireland, PolandNon-participation in UK, Belgium, Italy, Cyprus, Lithuania, Latvia, Estonia
41Employee protection Most problematic Germany: More than 500 employees: ⅓ of the supervisory bodyMore than 2000 employees: ½ of the supervisory body (still minority)Directive on employee participation in SE based on “before and after” principleFormation of special negotiating bodyAdoption of standard rules by MS, which can be applied if negotiating body so decides.In Cross-bor mer. Dir. application of SE employee participation rules with special/modified provisions
42Comparison with Serbian law on companies Compare whether Serbian law on companies is harmonized with 3rd Company Law Directive on national mergers on the issues of:Shareholders protectionCreditors protectionNullity of mergers
43Reading materials V. Edwards “European Company Law” Dorresteijn/Monteiro/Teichmann/Werlauff “European Corporate Law”Further reading:S. Grundmann “European Company Law”Jensen, A.F. „Cross Border Mergers in the EU before and After the SE“, ELSA Selected Papers on European Law 2002 (2),Manchin, M. „ Determinants of European cross-border mergers and acquisitions”, Eur. Commission, DG for Economic and Financial Affairs, 2004.Pannier, M. „The EU Cross Border Merger Directive – A New Dimension for Employee Participation and Company Restructuring“, European Business Law Review 6/05.Rickford „ The Proposed Tenth Company Law Directive on Cross Border Mergers and its Impact in the UK”, European Business Law Review 6/05.Wooldridge, F. “The employee participation provisions of the cross-border mergers Directive”, Company lawyer, 2007.