Providing some introductory information on cross boder Mergers. Based on an English perspective.

1. PRESENTATION FOR
EU Directive on Cross-Border
Mergers of Limited Liability
Companies
The Process and Benefits for UK
Companies Explained

2. AGENDA
What is the Directive?
Aim
Effect
Scope (eligibility)
Why utilise the Directive?
How to utilise the Directive
Pre Merger Requirements
Authority Approval
Summary

3. WHAT IS THE DIRECTIVE?
Companies are now able to avail themselves of
a mechanism for the automatic transfer of all
assets and liabilities of the transferor by
operation of law and the automatic dissolution
of the transferor company without having to
go into liquidation.
As a consequence, there is no requirement to
appoint a liquidator or commence a member’s
voluntary liquidation, which saves on both
costs and time.
INTRODUCTION

4. The Companies (Cross-Border Mergers) Regulations 2007
implement the EU Directive on Cross-Border Mergers of Limited
Liability Companies (Directive 2005/56/EEC).
Together they enable civil-style mergers between limited
liability companies in different EU states to facilitate the
legislative and administrative difficulties in transferring
businesses within the EU.
WHAT IS THE DIRECTIVE?
AIM OF THE REGULATIONS

5. Providing an alternative option to UK companies seeking to
transfer assets through the usual methods of business or share
acquisitions under the Companies Act 2006 and the Financial
Services and Markets Act 2000.
Unlike these methods, a relatively simple merger process involving
various procedural steps to be completed.
Rather than a traditional sale and purchase agreement
mechanism, this is a true statutory merger where the transferring
entity will be dissolved without going into liquidation.
These Regulations are an effective instrument for multinationals
with presence in European Member States to consolidate,
integrate and rationalise European business activities in one legal
entity.
EFFECT OF THE REGULATIONS

6. There must be at least one company formed and
registered in the UK and another in an EEA state in
order to fall within the scope of the Regulations.
There are three types of merger provided for:
1. Merger by absorption
2. Merger by absorption of a wholly owned
subsidiary
3. Merger by formation
SCOPE OF THE REGULATIONS
(WHO IS ELIGIBLE)

7. One or more existing transferor companies are
dissolved without going into liquidation.
Once all the assets and liabilities are transferred to
another existing company (‘transferee’), the
transferor is dissolved without going into
liquidation.
Consideration is required.
- Reg. 2(2).
MERGER BY ABSORBTION

8. Whereby the transferor company is a wholly owned
subsidiary of the transferee and dissolved without
going into liquidation.
On being dissolved and without going into
liquidation, the transferor transfers all assets and
liabilities to the transferee.
Because there is only a single shareholder in the
transferor, a number of exemptions apply,
compared to the default procedure.
- Reg. 2(3).
MERGER BY ABSORPTION OF WOS

9. Whereby two or more transferor companies
transfer all assets and liabilities to a transferee
company that is newly and specially formed for the
purposes of the merger.
The formation of this new transferee company and
merger will be in exchange for the issue of
securities or shares in the acquiring company, to
the members of the transferor company.
- Reg. 2(4).
MERGER BY FORMATION

10. The cross-border merger may result in additional synergies
and more critical mass.
A single corporate entity will help generate business
efficiencies such as facilitating the standardisation of common
company policies, employment policies and business
principles, thereby lessening the frequency of required board
and shareholders meetings.
A merger of this type will reduce the administration and
overhead expenses, harmonising the decision and
management structure within Europe.
WHY UTILISE THE DIRECTIVE?
ADVANTAGES

11. The transferee company will acquire all assets and liabilities by
way of absorption.
These will be acquired from the transferor company that will
cease to exist without a liquidation procedure.
Unlike alternative merger options consisting of transferring
assets individually, the Regulations provide companies
comprising more complex assets and liabilities, with a cleaner
way to achieve cross-border merger operations.
This circumvents the need to redraw contacts individually in
order to perfect the transfer or to deal with trapped assets in the
transferring entity that must go into liquidation.
This is a more efficient and clear-cut way of transferring assets.
LEGAL BENEFITS

12. The company ceasing to exist will generally be deemed to realise
a capital gain upon the moment of the merger, when the market
value of the assets and liabilities exceed their fiscal book value.
Such gain may be subject to corporate income tax provided
none of them are exempt under the applicable participation
exemption regime; and
no loss compensation is possible in the country where in
which the transferor company resides.
In 2007, the UK introduced a new tax regime applying to such
mergers to make them tax neutral.
TAX BENEFITS

13. The merger must be sanctioned by the court. In order to
obtain this approval, the companies must fulfil the pre-
merger acts and formalities necessary; Depending on the
question whether it’s a merger into or out of the jusrisdiction
these are provided for in Reg 6 or 16.
Each company will apply to their relevant national competent
authority for an order certifying the company has completed
the pre-merger requirements; “Pre-merger Certificate”.
This is the High Court for England and Wales.
The transferee company’s jurisdiction will sanction the merger
when the pre-merger certificates have been provided.
HOW TO UTILISE THE DIRECTIVE?

14. The company must produce two main legal document,
Draft Terms of Merger’ and the
key terms of the merger;
data of the merger for accounting purposes.
Directors Report
explains the legal and economic effects of the merger on members,
creditors and employees of the company.
Unless all shareholders agree otherwise, the company must
produce an independent expert’s report as to whether the
consideration for the transfer is reasonable.
PRE-MERGER REQUIREMENTS
DOCUMENTATION TO PRESENT THE UK COURT WITH

15. All documentation must be filed with Companies House.
Companies may either publish their draft terms on their website or attach a hard
copy of the draft terms with the completed form.
However, the Companies (Reporting Requirements in Mergers and Divisions) Regulations 2011 amended
the 2007 Regulations and did introduce a new facility allowing companies to publish draft terms of a
merger on a website;
Terms are to be enclosed along with a copy of any court order summoning a meeting of the company
members or creditors.
These documents must be delivered at least 2 months before the first meeting of the members for
publication in the London Gazette which Companies House will do once they receive the CB01 form.
There is no fee for filing in a cross-border merger. Companies House will make the documents available
to the public on the Companies Register.
PRE-MERGER REQUIREMENTS
COMPANIES HOUSE

16. In order to publish draft terms of a company merger on their
website, certain conditions must be met:
The website must be maintained by or on behalf of the
company, which must be identified;
There can be no fee payable to access the draft terms on the
website;
The terms remain available throughout the period beginning
1 month before and ending on the date of the first meeting of
the members.
PRE-MERGER REQUIREMENTS
CONDITIONS TO PUBLISH ONLINE

17. The merger must be approved by the shareholders of
the relevant companies, which will require 75%
majority for approval.
In the UK, the creditor can apply to the court to
summon a meeting of creditors as in some cases their
approval may be necessary.
PRE-MERGER REQUIREMENTS
SHAREHOLDER APPROVAL

18. PROCESS AT A UK COURT
MERGING BOTH INTO AND OUT OF THE UK
 The Company’s Certificate of Incorporation
 Their Annual return from Companies House
 The Company Register of Members
 A certified translated excerpt of the other involved EEA
state’s Company Register
 Draft Terms of Merger
 A certified translation or English, Power of Attorney
document
 A Director’s Report
 A copy of the submitted CB01 form and receipt from
Companies House
 An extract from the Gazette as placed by Companies
House
 A Share Certificate demonstrating where the shares
are
 Company Accounts going back 1 year
The application to court for a pre-merger requires the submission of a witness statement referring to and accompanied
by a list of documents:
! It is important to note that if any of the above documentation is in a language other than English, it must be
accompanied by a certified translation in English.

19. Subject to size, the company must include the consequences for their employees rights in their documentation
When the merging company has over 500 employees and employee participation rights in place already, the
level of participation in the resulting company is to be determined by either agreement facilitated by a Special
Negotiating Body (SNB) or they may elect to adopt the standard rules.
These will mean that the level of employee participation is to be equal to the highest level of whichever
merging company.
If there are no employees or fewer than 500, the company’s employees rights that will result from the merger
may still need to be indicated.
EMPLOYEE PARTICIPATION RIGHTS

20. COMPETENT AUTHORITY APPROVAL
FOR MERGERS BOTH INTO AND OUT OF THE UK
Once the courts of each jurisdiction are satisfied that these pre-merger formalities under the
Directive and local implementation have been complied with, they will confirm this by issuing a
pre-merger certificate.
This will be the High Court for England and Wales.
Merging companies will have up to 6 months to resolved any outstanding issues
(concerning employees, for instance) before making a joint application to the relevant
authority in the transferee’s jurisdiction.
Once the companies have obtained their pre-merger certificates from their own jurisdictions,
they must apply to the competent authority in the jurisdiction of the transferee entity that will
sanction the merger.
 Merger into the UK: the High Court will take this decision.
 Merger out of the UK: the other EEA state’s court will take this decision.

21. Once an order sanctioning the merger is issued, the UK company must:
send a copy of the court order no more than 7 days after the date on
which it was made, to Companies House
as well as details of any merging company outside the UK, including the
register in which the company is entered and their registration number.
The UK Court will also automatically send notification to the foreign Registrar
informing them of the approval for the merger.
Companies House will then:
send notification to the register of each transferor company from other
EEA states to dissolve the other EEA state company off their foreign
register for companies merging into the UK.
COMPETENT AUTHORITY APPROVAL
FOR MERGING INTO THE UK

22. If the transferee company is in another EEA state, the UK company must deliver
a copy of the order from the relevant competent authority in said state that
approved the completion of the merger, to Companies House.
This must be performed no more than 14 days after the date on which it
was made.
If it is in a foreign language, it must be accompanied by a certified
translation.
The foreign Court will also automatically send notification to the UK Registrar at
Companies House informing them of the approval for the merger.
The company will then be dissolved by Companies House with an explanatory
note.
COMPETENT AUTHORITY APPROVAL
FOR MERGING OUT OF THE UK

23. SUMMARY
Although utilising the Directive may appear to be
an exotic and more costly method of transferring
assets, it is becoming more and more a familiar and
regular feature of doing cross-border merger deals.
In a shrinking world, the Regulations are set to play
a key role in the creation of a truly pan-European
corporate landscape.

24. Philipp Simon
Ely Place Chambers
30 Ely Place
London, England
EC1N 6TD
Website: elyplace.com
E-Mail: psimon@elyplace.com
Tel.: +44 (0)20 7400 9600
Fax: +44 (0)20 7400 9630
In cooperation with
MMS - Avocats
14A, Rue des Bains
L-1212 Luxemburg
Luxemburg
Webseite: www.mms-legal.com
E-Mail: p.simon@mms-legal.com
Tel.: (+352) 26203006
Fax: (+352) 26203007
MMS - Legal
Pempelforter Str. 47
40211 Düsseldorf
Deutschland
Tel.: +49 (0)211 63552760
Fax: +49 (0)211 63552765
CONTACT DETAILS