Brussels, 18th November 2003
Company law: Commission proposes Directive on cross-border mergers
The European Commission has presented a proposal for a Directive to make cross-border mergers easier, by overcoming obstacles caused by different national laws. It would make such mergers simpler for all companies with share capital. However, it would be especially useful for small and medium-sized businesses who want to operate in more than one Member State, but not throughout Europe, and thus are not likely to seek incorporation under the European Company Statute. The proposed Directive would set up a cross-border merger procedure whereby mergers would be governed in each Member State by the principles and rules applicable to "domestic" mergers. The proposed Directive would fill an important gap in company law and is the first measure to be presented under the Commission's Action Plan on company law and corporate governance in the European Union, published in May 2003 (see IP/03/716 and MEMO/03/112). The proposal for a Directive will be submitted for adoption under the so-called 'co-decision' procedure to the EU's Council of Ministers (subject to qualified majority voting) and the European Parliament.
Internal Market Commissioner Frits Bolkestein said: "Making cross-border mergers easier is an important tool to facilitate the cooperation and restructuring necessary to make Europe more competitive. Currently, cross-border mergers are difficult or impossible and this proposal aims to put that right. At the same time, it is important to ensure that there are safeguards to prevent the abuse of cross-border mergers as a means for companies to circumvent worker participation obligations at national level. Swift adoption is especially important as enlargement will make it even more important for companies to be able to cooperate across borders."
As EU law now stands, cross-border 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 are such that companies wanting to merge have to resort to complex and costly legal arrangements. These arrangements often complicate the operation and are not always implemented transparently and with legal certainty. Moreover, they usually result in the acquired companies being wound up, which can be a very expensive operation.
The present proposal, which covers all companies with share capital, both public limited liability companies and others, aims to make cross-border mergers possible and easy all over the European Union by approximating the cross-border merger procedure to the procedures used for "domestic mergers" between companies governed by the laws of the same Member State.
In other words, each company taking part in a cross-border merger would, under the Directive as proposed, do so in accordance with the laws of its own Member State (except in specific cases provided for in the Directive related to the cross-border nature of the merger). Operators are already familiar with these national procedures through use.
Protection is afforded under national laws, and would thus be maintained by the proposed Directive, for creditors, debenture holders, the holders of securities other than shares, minority shareholders and employees.
In the specific case of employees' rights, the general principle of the national law of the company created by the merger applies. If there were no employee participation, this would continue to be the case and if the merged company were created in a Member State with rules on employee participation, it would be governed by those rules. However, if at least one of the companies taking part in the cross-border merger were governed by rules on employee participation in its home Member State and if the merged company were to be created under the rules of a Member State where such rules do not apply, then a negotiation procedure, as provided for under the European Company Statute, would apply (Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European Company and the accompanying Council Directive 2001/86/EC of 8 October 2001). This procedure would allow for interested parties to define an agreed participation regime on employee participation. It would only be where interested parties failed to reach agreement that, as a fall-back, the pre-existing co-determination regime would be extended.
In a situation where two companies merged and both operated under a compulsory co-determination regime, they could choose to incorporate in a Member State which has a compulsory regime but which is not equivalent to the most stringent co-determination regime, without having to enter into negotiations as foreseen in the European Company Statute.
The full text of the proposal will be available on the Europa website:
A complementary proposal to update, clarify and broaden the scope of the European Community's Directive that provides for tax deferral in the case of cross-border mergers and divisions of companies, transfers of assets and exchanges of shares (90/434/EEC) was presented recently by the Commission (see IP/03/1418).
On 14 December 1984 the Commission adopted a proposal for a Tenth Company Law Directive on cross-border mergers of companies. Several committees of the European Parliament examined the proposal, including the Committee on Legal Affairs, which adopted its report on 21 October 1987. However, Parliament did not deliver its opinion because of the fear that companies would use cross-border mergers to circumvent their obligations under employee participation rules in some Member States. This deadlock was linked to the fate of the proposal for a European Company Statute and 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 pointless, 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.
In October that year, the Regulation establishing a European Company Statute and the accompanying Directive on worker involvement (see IP/01/1376) were adopted. The Directive established some standard principles for worker participation in cases where managers and employee representatives could not negotiate mutually agreed arrangements. It thus opened the way to a new proposal on cross-border mergers, based on similar principles.
See also MEMO/03/233.