Vol 10 (2013) - Issue 4

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The Companies (Cross-Border Mergers) Regulations 2007: Procedure, Caselaw and Future

Introduction
It has been five years since The Companies (Cross- Border Mergers) Regulations 2007 (the 'Regulations') came into force in the UK. The Regulations implemented Directive 2005/56/EC on cross-border mergers of limited liability companies (the 'Directive').
In the words of the European Commission, the Directive was 'a big step forward for cross-border mobility of companies in the EU'. However, the Commission has indicated that in 2013 it proposes to analyse the conclusions of a forthcoming study on the application of the Directive and, subsequently, it will consider whether any amendments should be made to the Directive.
This article outlines the cross-border merger procedure in the UK under the Regulations and considers the reported caselaw on the Regulations in the English courts. It also considers and what amendments to the Directive and the Regulations might be appropriate from the operation of the cross-border merger regime in the UK and its equivalent legislation in other EU member states.

What is a cross-border merger?
The Regulations introduced a new form of statutory merger in the UK, a 'cross-border merger'. A crossborder merger must involve at least one UK company and at least one company governed by the law of an EU member state other than the UK.
Under the Regulations, a cross-border merger may take one of three forms, as follows:
– a 'merger by absorption', in which a transferor company transfers all its assets and liabilities to an existing transferee company in exchange for securities in the transferee company (or securities and cash) receivable by the members of the transferor company;
– a 'merger by formation of a new company', in which two or more transferor companies transfer all their assets and liabilities to a transferee company formed for the purposes of the cross-border merger in exchange for securities in the transferee company (or securities and cash) receivable by the members of the transferor companies; or
– a 'merger by absorption of a wholly-owned subsidiary', in which a transferor company which is a wholly-owned subsidiary transfers all its assets and liabilities to its parent company.

In a cross-border merger, as a matter of law:
– all the assets and liabilities of each transferor company are transferred to the transferee company;
– all rights and obligations arising from contracts of employment of each transferor company are transferred to the transferee company;
– all legal proceedings to which each transferor company is a party are continued with the transferee company in substitution for the relevant transferor company;
– all contracts, agreements or instruments to which each transferor company is a party have effect, notwithstanding anything to the contrary in the relevant contract, agreement or instrument, as if the transferee company had been a party instead of the transferor company;
– other than in the case of a merger by absorption of a wholly-owned subsidiary, each shareholder of each transferor company becomes a shareholder in the transferee company; and – each transferor company is dissolved without going into liquidation.

Use of the Regulations
Figures provided by Companies House indicate that during the period since the Regulations came into force to January 2013, there have been 180 mergers involving UK companies completed under the Regulations. Of these, 40 were completed in 2012 and 53 in 2011; 14 were completed in the first half of January 2013.