Explanatory Memorandum to COM(2003)703 - Cross border mergers of companies with share capital - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2003)703 - Cross border mergers of companies with share capital. |
|---|---|
| source | COM(2003)703  |
| date | 18-11-2003 |
The purpose of the Directive, which is to be viewed against the background of the Financial Services Action Plan and the Communication from the Commission to the Council and the European Parliament of 21 May 2003 entitled Modernising Company Law and Enhancing Corporate Governance in the European Union - A Plan to Move Forward, is to fill a significant gap in company law left by the need to facilitate cross-border mergers of commercial companies without the national laws governing them - as a rule the laws of the countries where their head offices are situated - forming an obstacle.
At present, as Community law now stands, such mergers are possible only if the companies wishing to merge are established in certain Member States. In other Member States, the differences between the national laws applicable to each of the companies which intend to merge are such that the companies have to resort to complex and costly legal arrangements. These arrangements often complicate the operation and are not always implemented with all the requisite transparency and legal certainty. They result, moreover, as a rule in the acquired companies being wound up - a very expensive operation.
There is an increasing need today in the Community of Fifteen for cooperation between companies from different Member States, as there will be tomorrow in the future enlarged Union, not forgetting the EFTA countries.
For a number of years now, Community companies have been calling for the adoption of a Community legal instrument that meets their needs for cooperation and consolidation between companies from different Member States and that enables them to carry out cross-border mergers.
More than ever, all companies, whether they be public limited liability companies or any other type of company with share capital, must have at their disposal a suitable legal instrument enabling them to carry out cross-border mergers under the most favourable conditions. The costs of such an operation must therefore be reduced, while guaranteeing the requisite legal certainty and enabling as many companies as possible to benefit. The scope of the Directive will therefore be drawn in such a way as to cover above all small and medium-sized enterprises, which stand to benefit because of their smaller size and lower capitalisation compared with large enterprises and for which, for the same reasons, the European company Statute does not provide a satisfactory solution.
Contents
On 14 December 1984 the Commission adopted a proposal for a tenth Council Directive on cross-border mergers of companies. i Several committees of the European Parliament examined the proposal, including the Committee on Legal Affairs, which adopted its report on 21 October 1987. i However, Parliament did not deliver its opinion owing to the difficulties raised by the problem of employee participation in companies' decision-making bodies. This situation of deadlock, which was linked to the fate of the proposal for a European company Statute, lasted more than 15 years. In 2001, against the backdrop of a wholesale withdrawal of proposals which had been pending for several years or which had become devoid of purpose, the Commission withdrew this first proposal for a tenth Directive with a view to presenting a fresh proposal based on the latest developments in Community law. A resolution of the European company (SE) question having been reached on 8 October 2001, the work on preparing a new proposal for a Directive on cross-border company mergers accordingly resumed. In the light of this state of affairs and of the fact that the parties have had an opportunity to comment on the broad lines of the proposal, both as part of the consultations carried out by the High-Level Group of Company Law Experts and as part of those on the above-mentioned Commission communication of 21 May 2003, further consultations and impact assessment on the present proposal, the speedy adoption of which is wished for by the interests concerned, have not been considered necessary.
The present proposal differs from the original proposal of 1984 mainly in scope and in the way it takes account, with regard to the participation of employees in the decision-making bodies of the acquiring company or of the new company created by the cross-border merger, of the principles and solutions incorporated in Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) i and in Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees. i
The original proposal covered only public limited liability companies. The present proposal extends that scope to include all companies with share capital which, in the unanimous view of the Member States, may be typified as companies having legal personality and separate assets which alone serve to cover the company's debts. It is aimed primarily at companies which are not interested in forming an SE, i.e. for the most part small and medium-sized enterprises.
The basic principle underlying the cross-border merger procedure is that - save as otherwise provided by the Directive for reasons to do with the cross-border nature of the merger - the procedure is governed in each Member State by the principles and rules applicable to mergers between companies governed exclusively by the law of that State (domestic mergers).
The aim is to approximate the cross-border merger procedure with the domestic merger procedures with which operators are already familiar through use.
In order to take account of the cross-border aspects, the principle of the application of national law is incorporated - but no more than is strictly necessary - via provisions based on the relevant principles and rules already laid down for the formation of an SE.
Protection under national law is also afforded to the interests of creditors, debenture holders, the holders of securities other than shares, minority shareholders and employees, as regards rights other than those related to participation in the company, vis-à-vis each of the merging companies. Reference may be made here to Council Directive 2001/23/EC of 12 March 2001 relating to the safeguarding of employees' rights in the event of transfers of undertakings, i Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a general framework for informing and consulting employees in the European Community, i and Council Directive 94/45/EC of 22 September 1994 i and Council Directive 97/74/EC i of 15 December 1997, both of which concern the establishment of a European works council or a procedure in Community-scale undertakings and Community-scale groups of undertakings for the purposes of informing and consulting employees. These Directives also apply to companies created by a cross-border merger.
The Directive, as is the case for comparable previous legal acts i, is without prejudice to the application of the legislation on the control of concentrations between undertakings, both at the Community level i and at the level of Member States.
Employee participation in a company created by cross-border merger, which was the reason for the deadlock over the original proposal of 1984, is coordinated by the present proposal for a Directive with a view to ensuring freedom of establishment.
The overriding fear concerning cross-border mergers was that the process might be hijacked by companies which, faced with having to live with employee participation, might try to circumvent it by means of such a merger.
Regulation (EC) No 2157/2001 and Directive 2001/86/EC have come up with a solution which can be used, mutatis mutandis, also with a view to coordinating company law under Article 44(2)(g) of the EC Treaty, as is the purpose of this Directive.
The context in which the Regulation and the Directive on the SE operate is different, however, from that surrounding the application of this Directive. By virtue of its Community nature, the SE is not subject to any existing national rules on compulsory participation in the Member State in which its registered office is situated. By contrast, companies created by the cross-border merger operations covered by the present Directive will be companies governed by the law of a Member State. Such companies will accordingly remain subject to the compulsory participation rules applicable in that Member State. It may well be, however, that, following a cross-border merger, the registered office of the company created by the merger is situated in a Member State which does not have this type of rule, whereas one or more of the companies taking part in the merger were operating under a participation system before the merger. To deal with this eventuality, provision is made for extending to companies covered by the present Directive the same protection of rights acquired with respect to participation as is granted under the system set up by the SE Regulation and Directive. The protection of acquired rights of participation is entirely justified in this case. In cases where the national law of the Member State by whose law the company created by the merger is governed does have rules on compulsory employee participation, such specific protection is unnecessary as the company in question will be subject to those rules.
Article 1 contains definitions which serve to delimit the scope of the Directive. The definitions of merger by acquisition and merger by the formation of a new company are taken from Directive 90/434/EEC, which also covers mergers between companies from different Member States and forms of company other than public limited liability companies. These definitions are in keeping with those in Directive 78/855/EEC concerning domestic mergers of public limited liability companies. i The scope includes all Community companies with share capital which, in the unanimous view of the Member States, may be typified as companies having legal personality and separate assets which alone serve to cover the company's debts. It is wider than that of Directive 78/855/EEC in that it is not limited to public limited liability companies but covers all companies with share capital.
Article 2 is designed to identify the law applicable in the event of a cross-border merger to each of the merging companies. Save as otherwise provided by the present Directive for reasons to do with the cross-border nature of the operation, each company remains subject to its national law on domestic mergers.
As to the protection of employees, the cross-border merger remains subject, with regard to rights other than those of participation in the acquiring company or in the new company created by the cross-border merger, to the relevant provisions applicable in the Member States, as harmonised inter alia by Council Directive 2001/23/EC of 12 March 2001 relating to the safeguarding of employees' rights in the event of transfers of undertakings, Directive 2002/14/EC of the European Parliament and of the Council of 11 March 2002 establishing a general framework for informing and consulting employees in the European Community and Directives 94/45/EC and 97/74/EC concerning the establishment of a European works council and the informing and consulting of employees. By virtue of these provisions, the change of employer resulting from the merger operation must have no effect on the contract of employment or employment relationship in force at the time of the merger, which is automatically transferred to the new owner. Likewise protected after the merger are all acquired rights of employees agreed under a collective agreement, and their rights to old-age, invalidity or survivor's benefits under statutory social security schemes.
Article 3 lists the points that have to be included in the draft terms of cross-border merger. It includes the items already harmonised by Directive 78/855/EEC for domestic mergers of public limited liability companies, to which have been added, as in the case of the SE, a number of further items dictated by the cross-border nature of the operation, such as the name and registered office proposed for the new company. The place where the registered office is situated determines which law will be applicable to the new company - an important piece of information as far as all interested parties, including creditors, are concerned. The draft terms must also contain information on the arrangements for employee involvement in decisions taken by the company created by the cross-border merger.
Article 4 deals with publication of the draft terms of cross-border merger and the information that must be furnished.
Article 5 provides for the possibility, as already laid down by Directive 78/855/EEC for domestic mergers of public limited liability companies and by Regulation (EC) No 2157/2001 for the European company, of providing for a single expert report on behalf of all shareholders.
Article 6 lays down the requirement of approval of the draft terms of cross-border merger by the general meeting. A similar requirement exists in the case of domestic mergers of public limited liability companies and in that of the formation of an SE by merger.
Articles 7 and 8 govern scrutiny of the legality of cross-border mergers. They are based on the corresponding principles and techniques provided for in Regulation (EC) No 2157/2001 for the SE.
Article 9 concerns the date on which the cross-border merger takes effect. The relevant date is to be that provided for by the law of the Member State by which the acquiring company is governed in the case of cross-border merger by acquisition or by which the new company is governed in the case of cross-border merger by the formation of a new company. The date must be after all the checks on all the companies taking part in the operation have been carried out.
Article 10 deals with the disclosure that must be effected upon completion of a cross-border merger. It is based on the corresponding provisions of Article 3 of Directive 68/151/EEC on the safeguards required to protect the interests of members and others, i this being the article that governs the publicising of all essential documents relating to companies with share capital.
Article 11 is based on Articles 19 and 23 of Directive 78/855/EEC, which already coordinate the effects of a domestic merger for public limited liability companies.
Article 12 is based on Article 29 of Regulation (EC) No 2157/2001, according to which, after the date on which a cross-border merger takes effect, it is no longer possible to declare the merger null and void, the aim being to ensure absolute certainty for all third parties affected by the merger in the various Member States concerned. It would be highly dangerous for third parties subject to the laws of different Member States to be faced with the nullity of an operation after all the checks in each Member State had been carried out conclusively.
Article 13 seeks to simplify the cross-border merger procedure in the case of a merger between two companies where the acquiring company already holds all or most of the shares or other securities of the company being acquired that confer the right to vote at the latter's general meetings. In such cases, a number of steps can in fact be dispensed with.
Article 14 deals with the participation of employees in the company created by a cross-border merger where the protection of acquired rights of participation is put at risk by the merger. Article 14 is relevant only in a situation where one of the merging companies has a participation regime, be it compulsory or voluntary and the law of the Member State where the company created by merger is to be incorporated does not impose compulsory employee participation. In all other cases, the national law applicable to the company created by merger determines the rules on employees' involvement. Article 14 reflects the balance already found in the context of the European Company Statute, in particular the negotiation procedure which should enable the interested parties to negotiate an appropriate regime to be applied for employee participation. For this purpose, article 14 incorporates by reference the provisions of Directive 2001/86/EC and Part 3 of the Annex which are specifically relevant to mergers. Accordingly, it is only if the merging companies fail to reach a negotiated solution, that the participation system which best protects the acquired rights of the workers and which already exists in one of the merging companies is extended to the company created by merger.
Articles 15 and 16 contain the usual final provisions concerning implementation, entry into force and the addressees of the Directive.