Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the European Parliament and of the Council on cross-border mergers of companies with share capital’ (COM(2003) 703 final – 2003/0277 (COD))
Date: 2004-04-28
Institutions: European Economic and Social Committee
Subjects: company law, company with share capital, merger, merger control, small and medium-sized enterprises, worker participation

30.4.2004

EN

Official Journal of the European Union

C 117/43

Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the
European Parliament and of the Council on cross-border mergers of companies with share capital’

(COM(2003) 703 final – 2003/0277 (COD))

(2004/C 117/11)

On 3 December 2003 the Council decided to consult the European Economic and Social Committee,
under Article 95 of the Treaty establishing the European Community, on the ‘Proposal for a Directive of
the European Parliament and of the Council on cross-border mergers of companies with share capital’
(COM(2003) 703 final – 2003/0277 (COD)).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 10 March 2004. The rapporteur was Ms Sánchez
Miguel.

At its 408th plenary session of 28 and 29 April 2004 (meeting of 28 April), the European Economic and
Social Committee adopted the following opinion by 56 votes to 11 with four abstentions.

1.

Introduction

The proposal, presented in 2003, contains several major

1.3
differences with respect to the 1985 proposal (3).

1.1
The draft directive on cross-border mergers, presented
by the Commission, has been subject to lengthy delays as part
of the broader interruption in the legislative process involving
the draft company law directives. As well as this proposal for a
tenth company directive concerning mergers, the proposals for
a fifth directive on management and representation bodies of
public limited companies, and for a fourteenth on transfer of
registered offices, continue to be deadlocked. There are a
variety of reasons for this, but in all cases there has been diffi-
culty in achieving consensus on recognising workers' right to
information and participation in the
company
relevant
processes, requiring appropriate legal modifications.

The adoption of the European Company Statute (ECS)
1.2
and of
its accompanying directive on the involvement of
employees (1), together with other directives governing workers'
rights to information and consultation, and their protection in
the event of company transfers – which also apply to compa-
nies created by cross-border mergers (2) – has made it consider-
ably easier to reactivate the process of presenting the pending
legislation to harmonise European company law. The present
proposal on cross-border mergers is a clear example of this.
The EESC attaches importance to this new move towards Com-
munity harmonisation of company law in the light of European
enlargement, bringing in countries with models of company
the present
organisation which differ both from those of
Member States and from each other.

(1) Regulation (EC) 2157/2001 and Directive 2001/86/EC, OJ L 294,

10.11.2001.

(2) Directive 97/74/EC on European works

councils, Directive
2000/23/EC on employees' rights in the event of transfers of under-
takings and Directive 2002/14/EC on informing and consulting
employees.

Firstly, whereas the 1985 proposal applied exclusively
1.3.1
to cross-border mergers of public limited companies, the 2003
proposal applies to mergers of companies with share capital,
which means that the possibility of cooperation and grouping
between companies of different Member States is extended to
other types of company more in keeping with the European
business fabric: SMEs.

1.3.2
Secondly, the proposals differ in terms of the rules of
referral employed. The 1985 proposal refers consistently to the
Third Directive on national mergers (4), whereas the 2003
proposal generally refers to national merger legislation, except
for the specifically cross-border aspects of
the mergers it
covers. Such referral
is practicable largely because national
legislation has already been harmonised under the terms of the
Third Directive, and it has beneficial effects since it simplifies
merger forms and procedures and is familiar to the social, legal
and economic players involved in mergers, enabling both
uncertainty and the high economic cost entailed by such opera-
tions to be reduced.

1.3.3
Thirdly, the main difference between the 2003 draft
directive and the 1985 proposal is the inclusion, in Article 14,
of employee participation in cross-border merger processes,
which were explicitly ruled out in the recitals to the 1985
proposal. The inclusion of this aspect of cross-border mergers
was clearly rendered necessary by the fact that, for the most
part, mergers have repercussions for employees in the under-
takings concerned and by the recognition of employees' rights
with regard to corporate governance under both Community
legal provisions and numerous voluntary agreements. It is our

(3) Proposal for a Tenth Directive concerning cross-border mergers of
public limited companies. COM(84) 727 final, OJ C 23, 25.1.1985,
p.11.

(4) Directive 78/855/EEC of 9 October 1978, being the third company

directive.

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belief that referral to the ECS and its accompanying directive,
with regard to employee participation in cases where the
national laws applicable to the company created by the merger
do not impose such involvement, facilitates adoption of the
proposed directive, since it avoids the need to repeat discus-
sions within the Community institutions.

1.7
Lastly, it is also worth pointing out that the tenth direc-
tive is needed because at present some EU Member State
national laws allow cross-border mergers between their compa-
for
nies with share capital
example between Spanish and Italian companies) while others
do not (8).

(as has happened in practice,

It should be borne in mind that the proposal for a direc-
1.4
tive is part of the programme to modernise company law and
enhance corporate governance in the European Union (5),
which includes an action plan which aims,
in the short-,
medium- and long-term, to bring about thorough-going legisla-
tive changes. These are intended to go beyond implementation
of the pending proposals for company law directives, and to
launch initiatives both legislative (directives) and non-legislative
(recommendations and others), concerning compulsory infor-
mation on corporate governance, a stronger role for non-
executive directors, full shareholder democracy (one share, one
vote), etc. More specifically, the present draft directive was on
the list of short-term actions (2003-2005) regarding company
restructuring and mobility.

1.5
It should also be borne in mind that the present directive
represents a step on the way to implementing the European
company (SE) as a valid legal vehicle throughout
the EU,
specially designed to meet the needs of SMEs, and which has
met with broad support in the EESC. It should be pointed out
in this regard that the Commission's communication of 21 May
2003 took on board the recommendation of the High Level
Group that the Tenth Directive on cross-border mergers should
be adopted before presentation of a proposal on the SE statute,
pending a prior viability study.

The reform undertaken by the company tax directives (6),
1.6
although not mentioned in the present draft directive, is also a
relevant issue. It is becoming abundantly clear (7) that the delay
in the constitution of
the SE results from the unresolved
problem of tax complexity arising from the relevant Com-
munity legislation and, in particular, of double taxation arising
from mergers. Cross-border mergers governed by the present
proposal may be considered to be similarly affected and, given
that the proposal
lower costs
should be encouraged in order to make such mergers attractive.

is geared principally to SMEs,

(5) Communication from the Commission to the Council and the Euro-

pean Parliament COM(2003) 284 final of 21 May 2003.

(6) Council Directive amending Directive 90/435/EEC on the common
system of taxation applicable in the case of parent companies and
subsidiaries of different Member States; Council Directive amending
Directive 90/434/EEC on the common system of taxation applicable
to mergers, divisions, transfers of assets and exchanges of shares
concerning companies of different Member States. EESC Opinion
312/2004 of 25 February 2004.

(7) Reference to the conclusions of the task force on SE taxation.

2. Gist of the proposal for a directive

2.1
The proposed directive regulates cross-border mergers,
considering as such mergers between companies with share
capital that have their head offices in - and are governed by the
laws of - different EU Member States (Article 1).

The forms that a merger may take are those recognised
2.2
by the ECS,
i.e. by acquisition, by the formation of a new
company or by the transferral of all a company's assets and
liabilities to its holding company (Article 1).

2.3 Merger procedures will be subject to the national laws of
the countries in which the companies involved in the merger
have their head offices. The procedure for carrying out a cross-
border merger – whatever form it may take - must however
meet a number of specific minimum requirements laid down in
the proposed directive (Article 2).

the proposal,

2.3.1
Firstly, the companies involved must draw up common
draft terms of merger containing the particulars laid down in
Article 3 of
the identity of the merging
i.e.
companies, the ratio applicable to the exchange of securities or
shares of each company and the rights conferred on holders of
such securities or shares and members enjoying special rights.
The draft terms must also include information on arrangements
for the involvement of employees in the company created by
the merger in order for the merger to go ahead.

2.3.2
Secondly, the proposal addresses the prior publication
of the merger, once the draft terms have been drawn up. The
fact that this must be done not less than one month before the
date of the general meeting is particularly relevant, as during
this time creditors and minority shareholders can exercise their
rights. Article 4 of the proposal refers back to Article 3 of the
first company directive 68/151/EEC (9) establishing the legal
procedure for publication. The purpose of this is to guarantee
the legal security of all those involved in a cross-border merger.

(8) The national laws transposing Directive 78/855/EEC established two
models regarding the compatibility of authorisations for cross-
border mergers. One group,
comprising Italy, Luxembourg,
Portugal, Spain and the UK, allowed such operations while a second
Ireland, Greece,
group, made up of
Germany, Finland, Denmark and Austria did not. Belgium occupies
an intermediate position, only allowing mergers by acquisition.

the Netherlands, Sweden,

(9) Amended by Directive 2003/58/EC, OJ L 221, 4.9.2003.

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2.3.3
The proposal also stipulates that experts must draw up
a report intended for members (Article 5) before the date of the
general meeting of each company, which will approve the
common draft terms of merger (Article 6). Owing to its prac-
tical relevance in terms of reducing the costs of a merger (an
aspect particularly relevant
for SMEs), attention should be
drawn to the possibility of appointing one or more indepen-
dent experts for all the companies involved, following a request
to the competent authority. This option is also provided in the
ECS for setting up an SE by means of a merger.

2.3.4 Once the draft terms of merger have been approved by
each general meeting, the competent authority will scrutinise
the legality of the merger (Articles 7 and 8), and the conclu-
sions of this scrutiny will be published in the relevant public
register (Article 10) in order to determine the date on which
the cross-border merger takes effect (Article 9) and its likely
consequences, depending on the type of merger: by acquisition
(Article 11(1)), by the formation of a new company (Article
11(2)) or by the transferral of assets and liabilities to the
holding company (Article 13). The legal security of the merger
is guaranteed by the fact that it may not be declared null and
void once the process is completed (Article 12).

limited companies, partnerships partly limited by shares, incor-
porated private companies or other forms of company, such as
cooperative societies, meeting the requirements of
the first
company directive (10) - to merge their assets by means of a
cross-border merger, with the company created by the merger
being subject to the legislation of one Member State.

3.2.2
Extending this new type of merger – i.e. cross-border
mergers – to other types of company will be particularly rele-
vant for SMEs, as these companies tend to be limited compa-
nies. Moreover, it is a fact that the EU's real economy is based
on a system in which large companies coexist with SMEs, the
latter being a key factor for economic development and, in par-
ticular, the largest source of employment in Europe, as well as
being particularly good at adapting to changing circumstances
and cyclical downturns and at innovation. It can therefore be
concluded that one of the objectives of Community legislative
policy should be to improve the competitiveness of SMEs and
that one of the most appropriate tools is that of merging
companies to create new legal
forms that safeguard cross-
border operations while making it easier to obtain financing
from banks and the capital markets.

for

the

Regarding

involvement

arrangements

2.4
of
employees in the company created by the merger, those used
in the company created by the merger will apply, subject to
national laws. If the new company is not subject to a participa-
tion system under the law of the country in which it is created
and if at least one of the merging companies is operating under
an employee participation system, the rules on participation
laid down in both the ECS and the Directive on employee
involvement – which provides a legal model in the event that
agreement is not reached between employees' representatives
and management (Article 14) - will apply.

3. General comments

The EESC welcomes the proposal

3.1
for a directive on
cross-border mergers, from the point of view of both ongoing
legislative policy and the legal techniques employed.

3.2 With regard to the first point, the proposed directive
extends the possibility of merger to other companies in the EU,
particularly SMEs.

3.2.1 Once it enters into force on 8 October 2004 (Article
70), the adoption of the ECS will enable public limited compa-
nies located in different Member States to form an SE by means
of a merger (Articles 2, 17 et seq). Once it enters into force,
the future directive on cross-border mergers will
introduce
another type of merger allowing companies with share capital
located in different Member States - whether they be public

3.3
As mentioned above, the proposal would also seem a
positive step in terms of the legal techniques employed, which
seek to simplify the legislative model applied to the two most
important aspects of the new proposal: the type of company
and employee participation.

3.3.1
Regarding the type of company, the proposal addresses
only the cross-border aspects of mergers, which, as a general
rule, are also governed by the rules on mergers laid down in
each of the national laws concerned. These have already been
harmonised following the transposition of the Third Council
Directive on mergers, though there are a number of significant
disparities between the Member States that must be taken into
account once this proposal is adopted. This system offers addi-
tional legal security to all the parties concerned and is the legal
model confirmed by practices in the Member States. In this
connection, consideration should be given to including infor-
mation on the expected effects on jobs and an impact assess-
ment in the draft terms of cross-border mergers.

3.3.2
Regarding employee participation in the merging
companies, the system of referral to the European Company
Statute and the Directive on employee involvement avoids re-
opening the debate which caused so many delays in the adop-
tion of these rules and regarding which a broad consensus has
been reached among all the interested parties.
In terms of
employee participation, therefore, Article 14 of the draft direc-
tive should, at least, ensure the protection of acquired rights
provided for in Directive 2001/86/EC in relation to the estab-
lishment of a European company by way of merger. The EESC

(10) Directive 68/151/EEC.

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feels that Article 14 should be amended accordingly in order to
reduce the risk – inherent in the current version – of lower
employee participation standards in the businesses and under-
takings concerned. In this regard, the EESC feels that it is essen-
tial that the national systems implemented enable all employees
of the merged company, including those working outside the
country where the company has its headquarters, to have the
same rights, in line with the system for involvement set up for
each type of company.

the company created by the merger. To avoid a potentially
damaging interpretation of the rights of third parties, a refer-
ence should be included to the right of third parties to oppose
the merger in the event that their rights have not been safe-
guarded, which would seem to be the purpose of Article 11(3).

A third aspect that should be clarified is the definition
3.4.4
of the scope and effects of the directive regarding the right to
employee involvement.

3.4 While it welcomes the proposed Directive,
the EESC
would however like to bring a number of relevant aspects to
the Commission's attention.

3.4.1
The legal basis used, which concerns company law
(Article 44 TEC), should be broadened to include Article 308
TEC, since it is not only the survival of the merged companies
which is at stake, but also that of their employees' jobs. Article
308 also becomes a legal basis for Directive 2001/86 supple-
menting the Statute for a European company as regards
employee participation, which is referred to in Article 14 of
the present proposal.

3.4.2 One aspect that may cause confusion when the future
directive is transposed is the system for scrutinising the legality
of the merger (Articles 7 and 8), according to which each
Member State will designate the authorities competent to scru-
tinise the legality of the merger as regards that part of the
procedure which concerns each merging company and the
completion of the merger. Article 10 of the 1985 proposal for
a directive also laid down a preventative system for scrutinising
legality, albeit with a number of derogations regarding which it
referred to the procedure laid down in Article 16 of the third
company directive (11). The EESC believes that harmonising the
European registry system by basing legitimacy on the content
of the register – i.e. the assumption that information is correct
and valid – and the principle of legality – according to which
the registrar would be responsible for the legality of registered
acts and documents – could simplify the system for scrutinising
the legality of cross-border mergers by means of a referral.

Another aspect

3.4.3
that must be considered by the
Commission is the protection of the rights of third parties,
including outstanding pay, as a combined interpretation of
Article 4(c) and Article 11(3) could in practice undermine these
rights. While Article 4(c) requires each of the merging compa-
nies to publish the arrangements made for the exercise of the
rights of creditors and minority shareholders (who, where
appropriate, will have a right to be bought out if such a right,
though not
is provided in
national
legislation), Article 11(3) stipulates that the special
formalities that must be completed before the transfer of
certain assets, rights and obligations by the merging companies
becomes effective against third parties must be carried out by

recognised in this legislation,

the

required

information

Firstly, it should be borne in mind and indicated in
3.4.4.1
the text that the stipulated information must include, as a
minimum,
under Directives
2001/23/EC on the safeguarding of employees' rights in the
transfers of undertakings, and 2002/14/EC on
event of
informing and consulting employees. The EESC considers that
national rules on information and consultation are not suffi-
cient, since they do not take account of cross-border issues.
The rules on European Works Councils do not always apply, as
least 1,000
they only relate to companies that employ at
workers, including at least 150 in different countries. For this
reason, the EESC again advocates that the proposal should
include rules guaranteeing workers the same rights to informa-
tion and consultation as those that apply to European compa-
nies.

3.4.4.2
Secondly, non-compliance with the legal obligation
to inform and consult workers in practice has a damaging
effect on employment, in the absence of specific measures to
protect it.

Thirdly, the content of Article 14 should be clarified
3.4.4.3
in order to prevent over-referral to legislation of a transnational
nature, such as the ECS Regulation, and that of a national
nature, such as the directive on the involvement of employees.
It must be made clear that the applicable systems are:

— the national participation system for merging companies;

— the negotiated model, in accordance with the provisions of
the directive on employee involvement, if no provision for
such involvement is made in national law;

— the mandatory model which would apply in the event of
non-agreement between the parties would be that set out in
Part 3 of the Annex to the directive on employee involve-
ment.

4. Conclusions

The EESC reiterates its view that the proposed directive

4.1
is positive and practical.

(11) Directive 78/855/EEC.

It would, however, like to draw the Commission's atten-

4.2
tion to two issues that the proposal fails to address.

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4.2.1
Firstly, the proposal fails to regulate the liability of
administrators and experts involved in the merger. It must be
remembered that Article 15 of the 1985 proposal established a
general mechanism for liability, based on Articles 20 and 21 of
the third company directive. It would, in general, be perfectly
justified to add an article on the liability of administrators and
experts to the 2003 proposal, not only because of the broad
consensus that exists in all national systems of law, but also
because the question of liability is included in many codes of
corporate conduct and reports backed by the Commission (12).

4.2.2
Secondly, this proposal needs to be coordinated with
existing directives and the new proposals on tax reform in the
area of mergers, etc. (13), as cross-border mergers in the EU will
only be viable in practice if there are effective company rules
providing legal facility and security, as is the objective of this
proposal for a tenth directive, and an appropriate ratio between
the cost and tax benefits of such mergers. The EESC therefore
believes that there is a need for coordination between DG
Internal Market and DG Economic and Financial Affairs.

Brussels, 28 April 2004.

The President

of the European Economic and Social Committee

Roger BRIESCH

(12) Report of the High-Level Group of Experts on Company Law of 4

November 2002.

(13) See footnote 6.

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APPENDIX

to the opinion of the European Economic and Social Committee

The following amendments, which received at least one quarter of the votes cast (Rule 54(3), were defeated in the course
of the debate:

Amend the second sentence of point 3.4.4.3

‘It must be made clear that, in cases where there was employee participation in at least one of the companies involved in
the merger, the applicable systems are:’

Reason

Without this addition the text of the opinion is inaccurate. If employee participation is to be applied to the new
company, such a scheme must in fact have already applied to workers' representatives.

Result of the vote:

For: 29, against: 41, abstentions: 4.

New point 3.4.4.4

‘The EESC is sceptical as regards the application of the mandatory model set out in Part 3 of the Annex to the directive
on employee involvement as this may imply the export of codetermination systems to other Member States which have
a totally different legal tradition.’

Reason

The application of this mandatory provision could result, for example, in the following situation: an enterprise from
country A (where there is no employee participation) merges with an enterprise from country B (which has employee
participation) and opts to have the registered office of the new enterprise located in country A. It would then be obliged
to apply the law prevailing in country B, even if this is out of step with the company law of country A (monistic and
dualistic systems).

Result of the vote:

For: 25, against: 40, abstentions: 4.