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The Warsaw Voice » Law » December 5, 2007
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Cross-Border Mergers Finally Possible?
December 5, 2007   
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Back in October 2005, Brussels responded to strong business demand to enable mergers between companies from different European Union member states by passing Directive 2005/56/EC. The directive has remained a paper tiger in Poland to date, thwarted by Polish legal obstacles, but this looks set to change as draft legislation designed to give it teeth was put forward.

The bill seeks to tack on extra provisions to the Commercial Company Code to allow for cross-border mergers involving limited-liability and joint-stock companies. Under the proposed regime, Polish companies could merge with foreign companies having their registered office or main place of business inside the European Economic Area. Left out for the moment are joint-stock partnerships, but this glitch should hopefully be put right during the committee stage.

Directive 2005/56/EC lays down the following conditions for cross-border mergers. First of all, a cross-border merger is not possible if it involves a type of company that is not allowed to merge under the national law of a specific member state. From the Polish law perspective, this in particular means that cross-border mergers cannot involve partnerships as surviving entities of a merger. The directive sets out a general rule that each company taking part in a cross-border merger is subject to the provisions and formalities of only the national law under which it is organized.

The procedures for cross-border mergers are generally consistent with domestic mergers. The first phase consists of the management boards of both companies drawing up common draft terms of merger. The directive consolidates the content of the draft terms. The main difference with cross-border mergers is that the draft terms must include an analysis of the likely repercussions of the merger on employment and, where appropriate, information on procedures to enshrine employee involvement in the surviving merged company.

Public disclosure of the common draft terms must take place. The exact manner in which this is done-typically involving, among other things, public notices in newspapers-is prescribed in the national law of the member states and must occur at least one month prior to the date of the shareholders' meeting scheduled to approve the merger. Also, at least one month prior to the shareholders' meeting, reports on the legal and economic aspects of the merger must be prepared by the two management boards and supplied to the shareholders and/or employees. Apart from the time aspect-which for domestic mergers is six weeks prior to the shareholders' meeting-these actions are pretty familiar to people acquainted with domestic merger procedures.

Generally, both merging companies are scrutinized by independent experts, who then prepare reports for shareholders on the common draft terms. The directive provides for two exceptions to this rule. First, in order to limit consultancy costs connected with cross-border mergers, the parties can commission a single report for the shareholders of both (or all) merging companies. Moreover, if the shareholders of the merging companies so wish, they can decide not to have any report drawn up at all. Finally, under the draft bill and in line with common sense, no reports are required if the surviving company holds 100 percent of the shares in the other company.

Following shareholder approval of the common draft terms, each merging company must obtain a pre-merger certificate (in Poland, issued by the registry courts), confirming completion and local law compliance. This stage is specific to cross-border mergers only. The certificates, together with the approved common draft terms, must be submitted for approval to the authority dealing with cross-border mergers competent for the surviving company. The cross-border merger takes effect on the date determined by the national law applicable to the surviving company-generally upon disclosure of the merger completion in the public register kept for the surviving company.

When enacted, the bill will finally facilitate the cross-border restructuring of Polish businesses. Its progress on to the statute book depends largely on the attitude of the current administrator. The directive says it should be put into force in national law by all member states by Dec. 15, 2007. This deadline will be missed, but perhaps not by too much.

Paweł Grabowski,
Maciej Olszewski
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