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HARMONISATION OF COMPANY LAW - PROPOSAL FOR A TENTH COMPANY LAW DIRECTIVE ON CROSS BORDER MERGERS
The Commission has adopted a proposal for a Directive concerning cross-border mergers between firms. The proposal would allow public limited companies to extend their international cooperation as far as merger, with the aim of achieving the size and the economies of scale necessary to make full advantage of the European market, and strengthening their ability to compete with large undertakings from non-Member States. 1. The legal machinery of merger between companies is designed for two main objectives : (a) to allow cooperation between firms to be taken to its ultimate conclusion, particularly in order to match their size to that of the market on which they operate; (b) to simplify procedures for restructuring a group. Mergers thus provide a legal tool which is particularly useful as a means of meeting the need for a durable and homogeneous Community market. 2. Mergers of public limited companies from the same Member State ("national mergers") have already been dealt with by the Third Company Law Directive (2), now being incorporated into domestic law by the Member States. 3. The Tenth Directive would take a further step forward by allowing mergers between companies from different Member States. At present cross-border mergers are rendered impossible by the legal obstacle placed in their way by the legislation of almost all Member States. With the same aim of promoting cooperation between undertakings, the Council, on 12 March 1984, attempted to overcome the final problems associated with a series of tax measures, including one directly concerning mergers between companies across the Community's internal borders. In addition, it recommended early action in the field of company law on international mergers. A prerequisite for measures on cross-border mergers is that such mergers should be legally possible. This in not the case at present. (1) COM(84) 727 (2) OJ L 295, 20.10.1978 - - 2 - This impossibility results not only from the tax burden associated with such operations, which should be removed by the proposed directive on the common system of taxation applicable to mergers, but also from purely legal obstacles: at the moment legislation in certain Community countries does not allow or does not provide for mergers, and in others such operations are subject to prohibitive conditions, such as the unanimous approval of the shareholders of the company being acquired. In these circumstances, Community undertakings wishing to merge have to resort to complex techniques, usually requiring the formation of a group of companies headed by a financial holding company followed by the transfer og assets within the group. Even then the result if by no means identical to that of a merger, as all the original companies retain their separate legal ecistence. Contents of the Directive As a result the harmonization already achieved in the field of national mergers, the new Directive would be limited to those matters which are specific to cross-border mergers. However, all mergers, both national and cross-border, are operations involving the same steps. (a) the drawing up of joint draft terms of merger (b) the approval of the merger by the appropriate organs of each of the companies involved (in principle the general meeting) (c) the drawing up of a report by the administrative or management bodies of each of the companies involved (d) the drawing up of an outside expert's report for each of the companies involved (e) a procedure for prior supervision, either judicial or administrative, of the legality of the merger, for drawing up and certification in due legal form of the acts required for the merger, for each of the companies involved. Following this sequence of preparatory acts, the merger maay then take effect on a given date, and it may be made effective against third parties by means of disclosure. One special aspect of cross-border mergers is that the merging companies are governed by the laws of different Member States. However, it is very important to note that all of the preparatory acts (with the exception of the joint draft terms of merger and the disclosure obligations are carried out individually by each of the companies involved. As a result they may be carried out by each of the companies involved in a cross border merger in accordance with the law of its own Member State without any need to provide for uniform rules. - 3 - It is nevertheless necessary to synchronise certain steps in the procedure. This is the case for (a) the prior supervision or the drawing up and certification of acts in due legal form for each company in an order fixed by the directive (b) the publicity surrounding the completion of a merger. Finally, certain rules relating to cross-border mergers must be harmonized to a greater degree than was necessary for national mergers. This has been achieved either by adopting uniform provisions in the directive or by designating the applicable law. This is particularly the case for: (a) the contents of the draft terms of merger (b) the protection of creditors of acquired companies (c) the date on which the merger takes effect (d) the causes of nullity of mergers.