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On the 15th December 2007, the Companies (Cross-Border Mergers)
Regulations 2007 will come into force, implementing in the UK the EU
Cross-Border Mergers Directive 2005/56/EC. David Glass of London based
Law Firm Pritchard Englefield reviews the significant development.
The Directive introduces a regime for effecting cross-border mergers
between companies in the European Economic Area (“EEA”). The procedure
is court-driven and, amongst other things, requires mergers governed by
the procedure to take account of any statutory employee participation
arrangements where these exist in one or more of the merging companies.
The Directive applies to the merger of limited liability companies
where at least two of the merging companies are incorporated in
different EEA States. The UK Regulations apply where at least one of
those merging companies is incorporated in the UK.
The Directive and the UK implementing regulations deal with three types
of “merger” – a “merger by absorption” whereby transferor companies
transfer all their assets and liabilities to an existing transferee
company in exchange for securities (or securities in cash) in the
transferee company receivable by the members of the transferor company;
“mergers by absorption of a wholly owned subsidiary” whereby a
subsidiary company transfers its assets and liabilities to its parent
and “mergers by formation of a new company” whereby two or more
transferor companies transfer all their assets and liabilities to a
transferee company in return for securities or securities in cash in
the transferee company becoming receivable by the members of the
transferor companies.
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On 24th October 2007 the UK Takeover Panel issued
a Practice Statement (No. 18) as to how the UK City Code on Takeovers
and Mergers is to apply to such “mergers”.
The new procedures are not mandatory in the UK in the sense that it
will still be possible to effect cross-border takeovers and mergers
through more traditional negotiated means. However, the new procedures
may serve to speed up such mergers by making use of a formal court
approved process supplemented by employee participation negotiated
arrangement where necessary.
The UK does not have vast experience of this type of court-driven
merger procedure and it will be interesting to see whether the new
procedures serve to facilitate mergers between UK and Polish companies
as well as between companies involving other EEA countries.
© October 2007 David Glass
All Rights Reserved.
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