By Maria Zitiridi, Associate Lawyer at S.Dionysiou & Partners LLC
Directive (EU) 2017/1132 of the European Parliament and of the Council which regulates cross‐border mergers of limited liability companiescame into force in order to ensure minimum equivalent protection for both shareholders and creditors by way of harmonization of rules and procedures to be followed.
A cross-border merger is a combination of two corporations, incorporated in accordance with the legal framework of a member state, having the registered address, central administration or main place of business within the European Union, where at least one of the merging companies is a Cypriot limited liability company,and in which combination only one corporation survives, and the merged corporation goes out of existence.
Generally, national laws that authorize mergers require approvals of the board of directors and the shareholders of the constituent corporations. In Cyprus the cross-border mergers are governed by the provisions of the Company Law, CAP 113.
- Merger Plan
The board of directors of each company taking part in the cross-border merger shall draw up a ‘’Merger Plan’’ – Common Draft Term and their contents must be identical between them. The Merger Plan of Cypriot company, in accordance with the Company law, must set out the main terms and conditions of the merger to be followed and shall include at least the following particulars:
(a) the legal form, name, and registered address of the merging companies,
(b) the likely impacts on employees of the merging companies;
(c) the ratio which applies to the exchange of securities and/or shares of company’s capital
The board of directors must approve the material terms of the transaction, as well as the price and structure of the transaction.
- Publication, Directors’Reportand Independent Report
Prior to the convening of the shareholders’ general assembly, the Common Draft Terms shall be published by the Registrar of Cyprus Companies in the Official Gazette of the Republic of Cyprus at least one month before the date of the General Meeting. The purpose of the abovementioned publication is to protect the interests of the mergingcompanies’ shareholders and third party creditors who may be affected by the restructuring.
At the same time, the Directorsof each merging company shall prepare a Directors’ Report and present this to the members, employees and creditors of each company on month before the date of the General Meeting. This report, among others, shall provide detailedexplanation and justification on the legal and economic aspects and the long-term implications of the cross-border merger.
The Common Draft Term and Directors’ Report which will be presented to the members at the General Meeting should be accompanied with the Independent Expert Reportexamining the Common Draft Terms and prepared one month before the General Meeting. Specifically, the abovementioned Report should declare whether the terms are fair and reasonable and indicate the methods used to arrive at the share exchange ratio proposed.
- General Meeting
Upon reaching agreeable terms and receiving board approval, the Common Draft Terms aretaken to shareholders for approval through a vote. The requisite percentage of the vote is determined either under corporate law or the corporate governance documents such as the Articles of Association. According to Corporate Law of Cyprus, CAP 113, in order to take effect, this must be approved by virtue of a Special Resolution.
- Verification – Court Applications
The procedure of the cross-border merger must be verified in two main stagesby submitting two consecutive applications to the Court.
In particular, where the Cyprus company is the absorbed company, an application must be submitted by the Cyprus company to the District Court,in the district where its the registered office is located, requesting the issuance of the pre-merger certificate. As soon as the pre-merger certificate is issued, it should be sent to the absorbing company which submits an application to the District Court requesting the issue of a court order approving the completion of the cross-border merger.
Where the Cyprus company is the absorbing company, an application must be submitted by the Cyprus company to the District Court, in the district where its the registered office is located, requesting the issuance of pre-merger certificate. As soon as the Cyprus company receives the pre-merger certificates of all companies involved in the merger, itsubmits an application to the District Court requesting the issuance of a court order approving the completion of the cross-border merger.
Finally, the second Court Order in both cases must be filed with the Registrar of Companies and consequently published in the Official Gazette of the Republic of Cyprus.
- Consequences of cross-border merger
The consequences of a cross-border merger are the following:
- All the assets and liabilities of the company being merged shall be transferred to the new company
- The members of the company being merged shall become members of the new company
Cross-border mergers are clearly a means of corporate restructuring at European Union level, whereby the participants have the right to choose the most appropriate legal framework to place their investments within the most effective organisational structure.
The new company, resulted from the cross-border merger, may apply for the exemption from corporate taxation due to the reorganisation of the companies.
The main conditions to be met are as follows:
- The purpose of the merger shall be genuinely economic.
- All involved companies have complied with their tax obligations and submitted the relevant tax declarations accompanied with the Financial Statements of each year.
- Νo amount will be paid by the absorbed company to the shareholders as a result of the reorganization.
For further information or clarifications, please contact S. Dionysiou & Partners LLC at firstname.lastname@example.org / +357 22 272360.