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.