Taking counsel: Implementing the EC directive on cross-border mergers

  • 2007-06-06
  • By Steven Lipp [Teder, Glikman & Partners]
Current regulation enables a European Company (SE) to be founded in Estonia by way of merger, establishment of a holding company or of a subsidiary company, or re-organization of an existing limited liability company. The Estonian Commercial Code, the Council Regulation (EC) No. 2157/2001 of Oct. 8, 2001 on the statute for a European Company (SE), Implementation Act and the Council Regulation (EC) No. 2157/2001 currently include regulation on the establishment, re-organization of a limited liability company and in the field of cross-border mergers. The latter regulation, however, needs some harmonization with regulation of other member states.

Proposed amendments to the Estonian Commercial Code are aimed at implementing the directive 2005/56/EC of the European Parliament and of the Council in order to facilitate the process of establishing SE by way of cross-border merger. The deadline for effecting the regulation for member states is Dec. 15, 2007.

The process of cross-border merger, as proposed by the draft amendment of the Commercial Code, does not differ much from the procedure of the merger process of locally registered companies in Estonia. At first, it is necessary to sign common draft terms of the merger showing data of the merging companies, regulation of shares to be exchanged or capital raised, likely effect on employment, information on assessment of property to be transferred to the SE and balance date of the merger.
Simultaneously while making the common draft terms of a merger, the new Articles of Association of the SE should be drafted. In cases stipulated by the Involvement of Employees in Activities of Community-scale Enterprises, Community-scale Groups of Enterprises and European Companies Act, the employees shall participate in the process of the merger.

Following the signing of the common draft terms of the merger, the company's at least one month prior to the general meeting accepting the merger'sis required to publicly announce information on the proposed merger showing the merging companies; each register where the merger is registered; and reference to the common draft terms of merger where shareholders and creditors may receive information on the merger.
Managements of the merging companies are required to present a report on the merger, and an independent expert (in Estonia a licensed auditor) is required to check the common draft terms of merger. Both reports are presented to shareholders of the merging company. A common auditor may be appointed for all merging companies, who in Estonia shall be appointed by the court.

All information about the merger shall be made available to the shareholders and employees of the merging company at least one month prior to the general meeting accepting the merger. Any shareholder of the company to be acquired who does not consent to the merger has the right to demand compensation for the shares from the acquiring company.
Following acceptance of the merger at the general meeting of the merging company, the merger will be registered in the respective registers. As a result of the merger, the companies' property will belong to the acquiring company, the shareholders of merging companies will be shareholders of the acquiring company, and the company that was acquired will be deleted from the register.

In case the merger is effected by way of founding a new acquiring company, then the companies' property will belong to the new company, the shareholders of both merging companies will be shareholders of the new company and both merging companies will be deleted from the register.
Procedural rules require each of the companies being acquired to present to the commercial register of the acquiring company a certificate giving proof that all requirements for merger of the company have been met. The merger is considered to be effected from the moment the merger is finished according to the legislation of the member state, where the acquiring company is or shall be registered.

Steven Lipp is a lawyer at the firm Teder, Glikman & Partners, a member firm of the Baltic Legal Solutions (BLS), a pan-Baltic integrated network of law firms, including Kronbergs & Cukste in Latvia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.