Mergers and Divisions
Mergers of Public Companies
The third council Directive deals with mergers of public liability companies. In order to be subject to the merger, there must be a full absorption of one company in another or the formation of a new company.
Whether mergers by acquisition or the formation of a new company the process consists of three stages
The first stage is the drawing up of the draft terms of a merger. This is an instrument negotiated by the administrator or management bodies of the merging company. Draft terms of merger contain a required minimum protection including a fair exchange ratio and the new rights of shareholders. The draft must be published in the matter prescribed by law.
Stage two involves a discussion within each of the companies by a general meeting of shareholders about the merger decision. Once taken the merger decision is published.
Stage three is the actual merger. This includes the transfer between the company and as between third parties of all the assets and liabilities of the company being acquired to the acquiring company or the new company.
Rules regarding nullity of mergers are provided for in order to protect members and third parties. Cases of nullity are limited to formal legalities. There are restrictions on nullity.
A number of specific provisions are laid down in order to protect the interest of employees, members, and shareholders.
Division of Public Companies
The sixth directive relates to the division of public liability companies. The division by acquisition is an operation by which after being wound up but without going into liquidation, a company transfer its assets and liabilities to more than one companies. The shareholders of the company being divided are allocated shares in the company receiving contributions as a result of the division.
Division by the formation of a new company is an operation, whereby after being wound up without going into liquidation, a company transfers all its assets and liabilities to more than one newly formed companies. The shareholders of the company being divided are allocated shares in the recipient company.
The following rules apply to divisions by acquisition and divisions by the formation of new companies. The draft terms of division are an instrument negotiated by the administrative or management bodies of the companies involved in a division. This draft must contain minimum protections including the share exchange ratio and rights conferred by the recipient companies on the holder of shares to which special rights were attached and the holders of security other than shares. It must be published in the manner prescribed by law in each state.
A division requires at least the approval of the general meeting of each company involved in the process. The administrative and management bodies of a company being divided must supply certain information to the general meeting and to the administrative or management bodies of the recipient companies.
There are safeguards to ensure the protection of shareholder and in particular, creditors. The main safeguard consists of joint and several liability for recipient companies where one does not discharge an obligation transferred to it under the division. States may provide that the recipient companies will be jointly and severally liable for the obligations of the company being divided.
Division under the supervision of a judicial authority is a division operation subject to the supervision of a judicial authority having the power to call a general meeting of the shareholder of the company being divided in order to decide upon the division and to call meetings of creditors of each of the company involved in order to decide upon the division.
When the judicial authority establishes that no prejudice will be caused to the shareholder, it may relieve the companies involved in the division from applying certain rules applicable to division by acquisition and division by the formation of a new company.
Cross-Border Mergers I
The Directive on cross-border mergers of companies is designed to facilitate cross-border mergers between limited liability companies. The purpose is to simplify the requirement.
The Directive applies to mergers of limited liability companies
- formed in accordance with the law of the State.
- with the registered office, central administration or principal of business within the EU
- if at least two are governed by the laws of different States.
The management administration organ of each of the merging companies is required to draft a common draft term of cross-border merger. The Directive contains a list of compulsory protections that must be included in the common draft terms and must be published in the matter prescribed by the law of each State and in accordance with the Directive at least one month before the date of the general meeting which is to decide on them.
The management or administration of the merging companies must prepare a report on the proposed cross-border merger for the members and employees that explains the legal and economic aspects of the cross-border merger and its implication
An independent expert report on the merger must be drawn up. It is not required if the members of each company above in the merger have so agreed. The export
The report must be available at least one month before the date of the meeting.
On the basis of documents, the general meeting of each merger company must decide on the approval of the common draft terms of a cross-border merger.
Cross-Border Mergers II
Each State must designate the authority to scrutinize the legality of a cross-border merger as regards the part of the procedure that concerns the company subject to its law. The authority must issue a premerger certificate attesting to the property completion of the pre-merger acts and formalities.
Each State must designate the authority competent for scrutinizing the legality of the merger as regards that part of the procedure that concerns the completion of the cross-border merger and for the appropriate form of a new company resulting from the cross-border merger where the company created by the cross-border merger is subject to its law. The authority must ensure the merging companies have approved the common draft terms of the cross-border merger in the same terms.
Following scrutiny of legality, the law of the State whose jurisdiction the company resulting from the merger is subject must determine the date upon which the cross-border merger takes effect and the arrangement for publicizing completion of the merger in the public register. The old registration must not be deleted until the new notification has been received.
The effect of a cross-border merger is as follows:
- the company being acquired, or the merging companies cease to exist;
- all the assets and liabilities of the companies concerned by the merger are transferred to the new entity;
- either the acquiring company or the new company’s members acquire the shares of the other entity;
Where the law of the state requires the completion of special formalities before the transfer of certain assets, rights, and liabilities by the merging company become effective against third parties, the company resulting from the merger is responsible for carrying out these formalities.
Worker Participation in Cross-Border Mergers
National laws on worker participation rules apply to the merged company. Where
- at least one of the merging company has in the 6 months before publication of the draft terms, an average number of employees in excess of 500 and is operating under an employment participation system
- national legislation applicable to the company resulting from the merger does not provide at least the same level of employee participation as operated in the merging companies measured by reference to the proportion of employee representatives amongst the administrative and supervisory organ which covers the profit units of the company subject to employment representation.
- e the national legislation applicable to the company resulting from the merger does not provide for employees or establishments of that company, situate in other states is same entitlement to exercise participation rights as is enjoyed by those employees in the State where the company resulting from the merger has its registered office,
then the principles and arrangement relating to worker participation laid down by the Directive on the European company apply to both.