Ex-Post Analysis of the EU Framework in the Area of Cross-Border Mergers and Divisions, EU Parliament Study: European Implementation Assessment

Directive 82/891/EEC of 17 December 1982 (Domestic Divisions Directive, or Sixth Council Directive) deals with the division of public limited liability companies in a single EU country. It covers the protection of shareholders, creditors and employees. The Domestic Divisions Directive addresses the different ways companies can be divided up, but concerns only national (and not cross-border) divisions. Directive 2005/56/EC entered into force on 15 December 2005 and provides a specific legal framework for cross-border mergers of limited liability companies (Cross-Border Mergers Directive - CBMD, or Tenth Council Directive). The CBMD is generally regarded in a very positive manner. It harmonised the cross-border mergers of limited liability companies in all EU and EEA Member States and provided a common framework facilitating cross-border mergers. More specifically, it required all EU and EEA Member States to permit cross-border mergers of limited liability companies and established a more predictable and structured framework for cross-border mergers, increasing legal security, which is essential for complex transactions. Also, it led to a significant reduction of the transaction costs for cross-border mergers. As a result, since the implementation of the CBMD, an increasing number of companies have carried out cross-border mergers. However, some obstacles to cross-border mergers relating to problems with the CBMD have been highlighted by both practitioners and scholars, in particular: i) the scope of the CBMD framework, especially the fact that it only covers limited liability companies and only companies that are able to merge under national law, ii) the incompatibility and great divergence in the national protection regimes of stakeholders (creditors, minority shareholders and employees) and iii) procedural and practical obstacles. These difficulties could be overcome by a revision of the CBMD addressing one or more of the following issues: extending the scope of the CBMD to include all legal entities within the meaning of Article 54 TFEU; further harmonising the rules on creditor protection (possibly with the introduction of an ex-post protection system which would not delay the merger); further harmonising minority shareholder protection (possibly with the award of an exit right against adequate compensation and a right to receive additional compensation in case of an inadequate exchange ratio); by introducing exemptions from the requirement of a merger report; harmonising the rules on the accounting date and on valuation; streamlining documentation and communication between competent national authorities. A further approximation of the rules on employee protection could also be useful if politically feasible. This study concludes that, with regard to cross-border divisions, the main difficulty relates to the fact that, since Directive 82/891/EEC applies only to national divisions, there is currently no EU legal framework on the subject. Some Member States have carried out an expanded transposition of the CBMD, or established their own national provisions supplemented by case-law. However, most Member States do not provide for cross-border divisions and, as a result, these take place through other sophisticated and overly complex procedures. In view of the importance of cross-border divisions as a re-organisational tool for companies and group companies, and in view of the jurisprudence of the European Court of Justice in the cases Sevic and Vale on the freedom of establishment, this situation does not seem satisfactory. Accordingly, legislative action in the form of a new Directive on cross-border divisions and a possible fine adjustment to the CBMD rules may be appropriate. In this respect, it is noted that the shortcomings of the existing EU legal framework on cross border mergers and divisions are not to be addressed by the Commission’s Proposal for a Directive of 3.12.2015 (COM(2015) 616 final), which constitutes a separate codification exercise.