Vol 5 (2008) - Issue 5

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Cross-border Mergers of Limited Liability Companies: Fantasy or Real Possibility?

1. Common framework for cross-border mergers

In October 2005 the European Parliament and the Council adopted Directive 2005/56/EC on cross-border mergers of limited liability companies (the ‘Directive’), having recognised the significance of cross-border mergers in the European Economic Area (EEA). The aims of the Directive are to facilitate the performance of cross-border mergers originating from the different legal and administrative systems of the Member States and to ensure protection of the members of the merging companies and of third parties (including employees and creditors).

1.1. Scope of the Directive

The Directive covers mergers of limited liability companies formed in accordance with the laws of a Member State and having their registered offices within the Community, provided at least two of them are governed by the laws of different Member States. The expression ‘limited liability companies’ refers to different types of companies in each Member State that share the common feature that the liability of the members of such companies are limited and the assets of the company cover its debts. Thus, this includes limited liability companies and joint stock companies, as well as other companies covered by legislation of Member States. The Member States may exclude cooperative societies from the scope of their legislation on cross-border mergers.

According to the Directive, a merger can take place in the following ways:

a) one or more companies transfer all their assets and liabilities to another existing company in exchange for issuing to their members securities or shares representing the capital of that company and, if applicable, a cash payment;
b) two or more companies transfer all their assets and liabilities to a company that they form, in exchange for issuing to their members securities or shares representing the capital of the new company and, if applicable, a cash payment;
c) a company transfers all its assets, rights and liabilities to the company holding all the securities or shares representing its capital.

There are two restrictive provisions: (i) that cross-border mergers are only possible between types of companies that may merge under the national law of the relevant Member State, and (ii) that the company involved in the merger must comply with the provisions of its national law. If a national law contains a ‘public interest clause’, the provision of this clause shall apply.

The adoption of a minimum standard for crossborder mergers commonly applicable in all Member States was possible thanks to the prior implementation of common merger procedures for inbound company mergers as a result of the implementation of company law directives and in particular the Third Council Directive of 9 October 1978 on the merger of joint stock companies (OJ L 78.295.36).

1.2. Applicable law

As concerns the question of applicable law, for each company involved in the merger, the company acts of the jurisdictions where the companies are established apply. Thus, for the transferred company the national – but harmonised – company act of the jurisdiction where such company is registered applies. As for joint implementing steps and measures (e.g. common draft terms), the legal provisions governing all companies involved in the merger need to be considered. Contradictions need to be settled by means of adjustment – this means that the highest and strictest standards in any jurisdiction will have to be observed.