Commission staff working document - Accompanying document to the Proposals for a Directive of the European Parliament and the Council simplifying the rules of the Third and the Sixth Company law Directives - mpact assessment - Executive SUMMaRY {COM(2008) 576} {SEC(2008) 2486}
Date: 2008-09-24
Institutions: European Commission
Subjects: EC Directive, company law, demerger, impact study, merger, simplification of legislation

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 24.9.2008 
SEC(2008) 2487 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying document to the 

Proposals for a directive of the European Parliament and the Council 
simplifying the rules of the Third and the Sixth Company law Directives 

Impact assessment 

EXECUTIVE SUMMARY 

{COM(2008) 576} 
{SEC(2008) 2486} 

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Executive summary 

1. 

INTRODUCTION 

In 2007, the Commission launched an initiative for a broad simplification exercise in the areas 
of  company  law,  accounting  and  auditing.  This  initiative  is  a  key  contribution  to  the  wider 
Better  Regulation/Simplification  agenda,  in  particular  the  initiative  to  reduce  administrative 
burdens weighing on European companies.  

A first proposal for a directive simplifying the Third and the Sixth Company law Directives 
on domestic mergers and divisions was included in the first package of "fast track" proposals 
adopted by the Commission in March 2007. This proposal aimed at repealing the requirement 
for an expert report in the context of a merger or a division of public limited companies where 
all  shareholders  of  the  companies  concerned  renounce  to  this  report.  The  directive  was 
adopted by the European Parliament and the Council on 13 November 2007.1 

On  10 July 2007,  the  Commission  adopted  a  communication  ("the  Communication")  setting 
out  its  further  ideas  for  simplification  of  the  company  law  acquis,  including  additional 
proposals for a simplification of the Third and the Sixth Company law Directives.2  

The Communication was welcomed by Competitiveness Council on 22 November 2007 and 
by the European Parliament on 21 May 2008. The European Parliament however recalls that 
the interests of all stakeholders, including investors, owners, creditors and employees, as well 
as the principles of subsidiarity and proportionality, must be duly taken into account.3 

In addition, at the Commission's invitation to stakeholders to submit comments in writing by 
October 2007, contributions from eighteen Member State governments, one EEA country and 
110 stakeholders (including European bodies and associations) were submitted that originated 
from 23 countries in total, of which 22 Member States. A report on the reactions received is 
available  on  the  website  of  the  Directorate-General  for  Internal  Market  and  Services 
(DG MARKT) at http://ec.europa.eu/internal_market/company/simplification/index_en.htm. 

The administrative costs related to the information obligations contained in the Third and the 
Sixth  Company  law  Directives  were  measured  in  the  context  of  a  large-scale  measurement 
that is a key part of the Commission's Action Programme for measuring administrative costs 
and reducing administrative burdens4. The report on this measurement which is based on the 
‘EU Standard Cost Model’ was delivered at the end of June 2008.5 The High Level Group of 
Independent  Stakeholders6  was  consulted  alongside 
the  consortium 

the  work  of 

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Directive 2007/63/EC of the European Parliament and of the Council of 13 November 2007 amending 
Council Directives 78/855/EEC and 82/891/EEC as regards the requirement of an independent expert’s 
report on the occasion of merger or division of public limited liability companies, OJ L300, 17.11.2007, 
p. 47. 
Communication from the Commission on a simplified business environment for companies in the areas 
(COM(2007)394); 
of 
http://ec.europa.eu/internal_market/company/simplification/index_en.htm 
Report A6-0101/2008 
See COM(2006)689 final, OJ C 78, 11.4.2007, p. 9. 
Although  the  report  has  been  delivered  as  final  version,  minor  adjustments  in  the  version  that  will 
ultimately be published, at this stage, cannot be excluded. 
See http://ec.europa.eu/enterprise/regulation/better_regulation/high_level_group_is_en_version.htm 

accounting 

company 

auditing 

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law 

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Deloitte/Rambøll/Capgemini  that  carries  out  the  measurement.  The  Group,  in  its  opinion  of 
10  July  2008,  supports  the  Commission's  intention  to  propose  measures  to  reduce  the 
administrative burdens created by the Third and the Sixth Directive. 

The report on the measurement forms the main basis of the Impact Assessment. Other sources 
of  information  are  replies  from  the  Member  States  to  questions  submitted  by  DG MARKT 
and the summary report on the reactions to the July 2007 Communication. 

2. 

SUBSIDIARITY 

Action at EU level is necessary to the extent that the obligations that impose administrative 
burdens  derive  from  EU  directives.  Under  those  conditions,  the  reduction  of  administrative 
burden requires the modification of the EU rules. Action at EU level is therefore justified. 

3. 

OBJECTIVES 

The objective of this initiative, which is foreseen in the Simplification Rolling Programme for 
adoption by the Commission in 20087, is to enhance the competitiveness of EU companies by 
reducing  administrative  burdens  that  are  caused  by  the  rules  of  the  Third  and  the  Sixth 
Directives, where this can be done without jeopardising the interests of other stakeholders. 

In particular, this initiative aims at: 

•  Reducing  reporting  requirements  at  EU  level  in  the  context  of  mergers  and  divisions,  in 
order  to  provide  Member  States  and  companies  with  more  flexibility  to  decide  which 
reports are really needed in each specific case; 

•  Removing  rules  that  lead  to  double  reporting  and,  therefore,  cause  unnecessary  costs  to 

companies; 

•  Adapting  rules  on  publication  and  information  duties  to  the  technological  developments, 

also with a view to general environmental considerations; and 

•  Ensuring  coherence  between  the  rules  of  the  Third  and  the  Sixth  Directives  on  the  one 
hand and recent changes to the rest of the Company law acquis on the other, in particular 
as concerns the creditor protection rules in the Third, the Sixth and the Second Directive. 

4. 

PROBLEM DEFINITION, OPTIONS & IMPACTS 

The  Third  and  the  Sixth  Directives  currently  contain  a  number  of  detailed  reporting 
requirements  that  companies  involved  in  a  merger/division  have  to  comply  with  and  which 
impose  considerable  costs  on  them.  When  the  requirements  of  these  two  directives  are 
considered  in  conjunction  with  the  Second  Company  law  Directive  on  the  capital  of  public 
limited-liability  companies,  in  certain  situations,  this  can  lead  to  a  further  increase  in  costs. 
Furthermore, the means provided for in the directives to inform shareholders about the details 

7 

"Second progress report on the strategy for simplifying the regulatory environment", Annex 1, Revision 
of  the  company  law,  accounting  and  auditing  acquis  (COM(2008)33,  not  published  in  the  Official 
Journal, p. 23) 

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of the transactions were designed 30 years ago and therefore do not take into account today's 
technological  possibilities.  Finally,  changes  in  other  directives  during  the  last  years  and  in 
particular to the Second Company law Directive in the area of creditor protection have lead to 
certain inconsistencies between the different directives. 

In the light of the problem definition above, there are three areas that could be addressed by 
simplification measures: 

(1) 

(2) 

Reporting requirements in the context of the planned merger/division; 

Publication and documentation duties vis-à-vis the shareholders in particular; and 

(3) 

Rules on creditor protection. 

The impact of possible policy options was measured against the following criteria: reduction 
of  companies'  administrative  burdens,  impact  on  the  rights  of  resident  and  non-resident 
shareholders,  impact  on  creditors  and  other  stakeholders  (e.g.  employees),  environmental 
impact and consistency with other directives.  

The  conclusion  of  the  impact  assessment  is  that  the  potential  overall  savings  of  the 
recommended  options  in  terms  of  administrative  burdens  can  roughly  be  estimated  at  about 
172 mio €/year. This would imply a reduction 
in administrative burdens by about 9.15 % as 
far as the area of company law is concerned and by about 1.23 % if the total administrative 
burdens in the areas of company law, accounting and auditing are taken as a basis.  

4.1. 

Reporting requirements 

The reporting requirements in the Third and the Sixth Directives consist of the obligation to 
produce  a  written  report  by  the  management  on  the  legal  and  economic  grounds  of  the 
merger/division, an independent expert's report that examines in particular the proposed share 
exchange  ratio,  and  an  accounting  statement  where  the  annual  accounts  are  older  than  six 
months.  These  documents  have  to  be  submitted  to  the  general  meeting  of  shareholders  that 
has to decide on the merger or the division. 

In  relation  to  the  written  report  from  the  management,  the  measurement  report  indicates 
that  for  mergers,  the  total  administrative  costs  in  the  EU  27  amount  to  around 
7.79 mio €/year.  25 %  are  estimated  to  be  so-ca lled  "business  as  usual  costs",  so  that  the 
administrative burden is estimated to around 5.84 mio €/year.  

With  a  view  to  divisions,  the  corresponding  total  costs  are  about  7.98 mio €/year,  but  this 
figure only covers 23 Member States.8 Assuming the costs of divisions,  in the missing four 
Member States, are about the same as for mergers the total costs with a view to divisions can 
be estimated to 8.89 mio €/year, and th e administrative burden 6.67 mio €/year. 

As far as the independent expert report on the draft terms of merger/division is concerned, 
the yearly administrative burden are estimated at about 248.15 mio € with a view to  mergers, 
and about 81.17 mio € with a view to  divisions. The consortium estimates these burdens will 
be reduced by about 170.09 mio €/year on ce Directive 2007/63 has been transposed9. 

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9 

The missing MS are DK, HU, IE and NL. 
Transposition deadline is 31/12/2008. 

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The  impact  assessment  estimates  the  administrative  burden  of  producing  the  accounting 
statement to be at least 1.28 mio €/year.  

These  figures  show  that  these  reporting  requirements  create  considerable  administrative 
burdens for companies. 

The  first  question  to  be  addressed  is  therefore,  whether  these  reporting  requirements  are 
indispensable  in  their  current  form.  Furthermore,  account  needs  to  be  taken  of  the  fact  that 
these  costs  are  increased  further  where  one  of  the  companies  has  to  finance  the  operation 
through a capital increase or where a new company is set up as a part of the operation as this 
leads to additional reporting requirements under the Second Company law Directive. Finally, 
the current use of Member State options to reduce reporting requirements in certain situations 
needs to be looked at. Where a merger/division involves a parent company and its 100 or at 
least 90% subsidiary, the directives, under certain conditions, already give Member States the 
possibility  to  reduce  the  reporting  requirements  deriving  from  the  Third  and  the  Sixth 
Directives. However, not all Member States currently make use of this possibility. 

The impact assessment identified possible simplification measures for this problem strand in 
three areas: 

(4)  measures targeting all public limited-liability companies; 

(5)  measures  with  a  view  to  companies  that  are  set  up  or  increase  their  capital  in  the 

context of a merger or division; and 

(6)  measures concerning simplified mergers and divisions between parent companies and 

subsidiaries. 

4.1.1.  Measures targeting all public limited-liability companies 

Four options are presented with a view to the first strand of actions that addresses the current 
extent of the reporting requirements in general: 

–  Option 1: No policy change; 

–  Option 2: Introduce the possibility, for shareholders, to renounce the written report of the 
management and the accounting statement, either by unanimity or by majority decision; 

–  Option 3: Restrict the reporting requirements in the directives to medium sized and large or 

to listed companies; and 

–  Option 4: Repeal the reporting requirements in the directives. 

The impact assessment concludes that option 2 should be preferred as it avoids any negative 
impact  on  the  interests  of  the  shareholders  while  achieving  some  burden  savings  for  the 
companies involved. Option 1 would not lead to any additional savings for companies once 
directive  2007/63  has  been  transposed  whereas  options  3  and  4  are  likely  to  have  a  too 
harmful effect on the rights of shareholders. Furthermore, under the two latter options there 

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would be a risk of diverging national rules with a view to domestic mergers on one hand and 
cross-border mergers on the other which are regulated by the so-called Tenth Directive10. 

In  addition  to  the  measures  under  option  2,  it  is  proposed  to  abolish  the  requirement  for  an 
accounting  statement  where  the  company  has  set  up  a  half-yearly  financial  statement  under 
the Transparency Directive. 

The total savings of these proposed measures are estimated at about 7.12 mio €/year. 

4.1.2.  Measures  with  a  view  to  companies  that  set  up  new  companies  or  increase  their 

capital in the context of a merger or division 

This strand of action looks at the duplication of requirements for experts' reports that currently 
derives  in  particular  from  the  rules  of  the  Sixth  Directives  on  the  one  hand  and  the  Second 
Directive on the capital of public limited-liability companies on the other, in cases where the 
operation is linked to setting up a new company or an increase in the capital of the receiving 
company. In the case of mergers and public offers, the Second Directive contains a Member 
State  option  to  exempt  companies  from  the  report  on  contributions  in  kind  required  by  that 
directive. 

Three options are presented: 

–  Option 1: No policy change; 

–  Option  2:  Introduce  a  Member  State  option  to  grant  an  exemption  from  the  reporting 
requirement under the Second Directive where an expert report is established in the course 
of a division; and 

–  Option  3:  Introduce  a  mandatory  exemption  from  the  reporting  requirement  under  the 

Second Directive in the case of a merger, a public offer and a division. 

The  conclusion  in  the  Impact  Assessment  is  that  option  2  should  be  preferred.  Whereas 
option 1  implies  that  double  reporting  would  have  to  continue,  option  3  would  not  leave 
Member States any flexibility to adapt procedures under national law to the precise need of 
companies and shareholders. This flexibility, however, seems useful given that the contents of 
the reports under the Third and the Sixth Directives on one hand and the Second Directive on 
the other are not entirely identical. 

The  burden  savings  of  option  2  are  estimated  to  lie  between  3.26  –  9.43 mio €/year, 
depending on how many Member States will make use of the option to be granted. 

4.1.3.  Measures  concerning  simplified  mergers  and  divisions  between  parent  companies 

and subsidiaries 

The  third  strand  of  action  looks  at  the  current  possibility  for  Member  States  to  grant 
exemptions  from  the  need  to  hold  a  general  meeting  and  from  certain  reporting  and 
information requirements where the merger or division take place between parent companies 

10 

Directive  2005/56/EC  of  the  European  Parliament  and  of  the  Council  of  26  October  2005  on  cross-
border mergers of limited liability companies, OJ L310, 25.11.2005, p. 1 

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and their subsidiaries. Currently, only about one third of the Member States make full use of 
this option. 

The impact assessment sets out three options: 

–  Option 1: No policy change; 

–  Option  2:  Removing  the  Member  State  options  as  regards  simplified  mergers  and 

divisions; and 

–  Option  3:  Ensuring  that  Member  States  have  to  grant  the  possibility  of  simplified 

mergers/divisions to their companies. 

The conclusion is that option 3 should be preferred as none of the two other options is likely 
to  lead  to  a  change  at  Member  State  level.  The  potential  savings,  under  this  option,  are 
estimated to be around 153.49 mio €/year.

4.2. 

Publication and documentation duties 

Under the rules of the Third and the Sixth Directives, companies have to file the draft terms of 
merger/division  with  the  companies  register  and  publish  these  draft  terms  in  the  national 
gazette or a central electronic platform, in line with the provisions of the First Company law 
Directive  on  disclosure  obligations  of  limited-liability  companies.  The  necessity  of  filing 
these  draft  terms  with  the  register  can  be  questioned,  in  particular  where  they  are  today 
available online. 

Furthermore, the directives provide that shareholders must be given the possibility to access 
certain documents at the place of the company's registered office and to receive free copies of 
these  documents.  Also  this  obligation  does  not  seem  to  be  in  line  any  more  with  the 
possibilities offered by modern information technology which allow for an easier and cheaper 
access to the information and have therefore already been used in more recent directives. 

In the impact assessment, three options for action are therefore examined: 

–  Option 1: No policy change; 

–  Option 2: Use a central digital solution at national level for publishing the information; and 

–  Option 3: Use the company's or another Internet site for publishing the information. 

Option 3 is identified as the option to be preferred as it combines the advantage of adapting 
the information mechanisms under the Third and the Sixth Directives to those used in more 
recent directives with a low risk that shareholders will incur additional costs for the access to 
the information. Option 3 also offers the highest burden savings potential which is estimated 
at over 3.5 mio €/year. 

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4.3. 

Protection of creditors 

Recent changes to the Second Company law Directive11 have, inter alia, led to clarifying the 
creditor protection rules under that directive in the sense that creditors have to show credibly 
that  an  operation  concerning  the  company's  capital  jeopardises  their  claims  if  they  want  to 
obtain securities. This clarification is lacking in the parallel rules contained in the Third and 
the Sixth Directives which leads to a certain inconsistency between these directives. 

On this issue, three options are discussed: 

–  Option 1: No policy change; 

–  Option  2:  Adapt  creditor  protection  rules  to  the  provision  in  the  modernised  Second 

Directive; and 

–  Option 3: Repeal the creditor protection rules in the directives. 

Option 2 is recommended as it ensures coherence between the different EU directives without 
jeopardising  creditors'  rights.  No  material  impact  on  companies'  costs  is  expected  from  this 
option. 

5. 

MONITORING AND EVALUATION 

Five  years  after  the  transposition  of  the  amendments,  the  effect  of  the  measures  should  be 
evaluated.  

This evaluation should look, in particular at the following questions: 

•  Whether  and  to  what  extent  the  overall  costs  of  companies  have  been  reduced  in  the 
context of mergers and divisions; this should be based, inter alia, on the feedback from a 
sample of companies; 

•  Whether the information provided to shareholders and other stakeholders in the course of 

the process is considered sufficient; and 

•  Whether the recommended Member States' option with a view to the reporting requirement 
under  the  Second  Company  law  Directive  in  the  case  of  mergers  and  divisions  provides 
useful results on whether a mandatory exemption should be considered. 

A  permanent  monitoring  of  the  developments  of  companies'  costs  would  imply  putting 
additional  administrative  burdens  on  companies  in  order  to  obtain  the  information  required. 
Such a system is therefore not envisaged at this stage. 

11 

Directive 2006/68/EC of the European Parliament and of the Council of 6 September 2006 amending 
Council  Directive  77/91/EEC  as  regards  the  formation  of  public  limited  liability  companies  and  the 
maintenance and alteration of their capital, OJ L 264, 25.9.2006, p. 32. 

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