At present there are no specific procedures under UK or EU law
for cross-border mergers. This can lead to long delays for mergers
as arrangements are worked out on an individual basis or by dual
listing arrangements and take-overs, involving companies in complex
and costly legal arrangements.
The draft Cross-Border Mergers Directive, proposed by the
Commission in November last year, aims to create a new legal
framework for cross-border mergers within the EU, enabling UK
companies to engage more easily and with greater certainty in
cross-border mergers with companies from other Member States.
The background
The Commission has tried once before to push through legislation
dealing with the cross-border mergers of companies, but the
proposal foundered over fears that companies would use the mergers
to circumvent their obligations under employee participation rules
(which allow employees a degree of involvement in company decision
making) in some Member States.
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 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, both of which had been held up by the deadlock over
employee participation, 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.
The proposed
Directive
According to the Commission, the proposed Directive, which is
intended to cover all companies with share capital, aims to make
cross-border mergers possible and straightforward 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 proposed Directive, 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.
This, says the Commission, allows operators to use national
procedures that they are already familiar with, and ensures that
protection for creditors, debenture holders, the holders of
securities other than shares, minority shareholders and employees,
as provided for under national law, continues.
In the specific case of employees' rights, the general principle
of the national law of the company created by the merger applies.
This means that if in the national law of one company there were no
employee participation, this would continue to be the case, while
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 take effect.
This procedure, according to the Commission, would allow
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 fallback, the pre-existing
co-determination regime would be extended.
The Consultation
According to Industry Minister Jacqui Smith the proposal "offers
increased legal certainty and seeks to avoid unnecessary burdens
and constraints on business while ensuring adequate safeguards for
those who deal with the companies involved".
The Government is seeking the views of industry on the
Commission's latest proposals and has announced a consultation, due
to run until 20th September.
