TAKING COUNSEL: Cross-border mergers to be easier with adoption of new law

  • 2007-10-03
  • Lina Jusiute [Jurevicius Balciunas & Bartkus]
On Dec. 15, 2005 a European Union directive on cross-border mergers of limited liability companies (2005/56/EC) came into force. Member states were given two years, or until Dec. 15, 2007, to comply and adopt the laws and regulations necessary for the directive.

The directive filled an important gap in company law and enabled cross-border mergers of limited liability companies in the EU, which until the directive came into force had been impossible, or very difficult and expensive. Implementation of the directive will make cross-border mergers easier by overcoming obstacles caused by different national laws and reduce costs connected with a cross-border merger. However, the directive will be especially useful for small and medium-sized businesses that want to operate in more than one member state but are not able to seek incorporation under the European Company Statute.

In Lithuania, Parliament received in August 2007 the draft Law on Cross-border Merger of Limited Liability Companies as part of the process necessary to implement the aforementioned directive. The draft law applies to mergers of national private and public liability companies with respective limited liability companies from another member state that have their registered office, central administration or principal place of business within the community, provided at least two of them are governed by the laws of different member states.
According to the draft law, the provisions regarding the reorganization by way of merger pursuant to the Company Law of the Republic of Lithuania will apply to merging companies 's i.e., the general shareholder meeting of a limited liability company will adopt the decision on taking part in a cross-border merger. Provisions on safeguarding employee rights as established by Lithuania's labor laws will also be applicable.

In order to protect the interests of creditors, members and employees of merging companies, the common draft terms of a cross-border merger will be prepared by the management or administrative organ. These common draft terms will be prepared in the same terms for each merging company by overcoming provisions of different national laws. Compared with the directive, the draft law slightly expands the minimum content of common requirements of a cross-border merger 's e.g., data of the register of legal entities, way of merger, etc. 's that should be provided.

For members of each merging company a report of an independent expert will be provided. In order to limit costs connected with a cross-border merger, the draft law allows for the possibility to prepare a single report intended for all members of companies taking part in a cross-border merger. This independent expert should be approved by the respective public institution 's i.e., holder of the Lithuanian register of legal entities.
Similarly, as with a case of a merger on the national level, a report intended for the members explaining and justifying the legal and economic aspects of the cross-border merger and explaining its implications for members, creditors and employees will be prepared by the board (or by general manager, if there is no board) of each of the merging companies.

Also, when two Lithuanian companies are to merge, the competent authorities for scrutinizing the legality of the cross-border merger will be notaries. Procedures established in Lithuania's Company Law will apply. According to the directive, the same authority issues a pre-merger certificate attesting to the proper completion of pre-merger formalities. However, the draft law provides that the Lithuanian Register of Legal Persons issue this certificate.
The draft law also establishes rules regulating terms and conditions of public announcements related to a cross-border merger, simplified formalities, safeguarding interests of employees of merging companies, etc.
However, due to implementation of the law respective actions should be made 's i.e., the draft on the rules of involvement of employees to participation in the decision-making should be prepared and submitted to the Lithuanian Parliament. Also, the Regulations of the Register of Legal Persons of the Republic of Lithuania should be supplemented. Furthermore, the draft law itself is still in the process of coordination within the various institutions in Lithuania's Parliament.

The Law on Cross-border Merger of Limited Liability Companies is to enter force on Dec. 15, 2007.

Lina Jusiute is an Associate Advocate at Jurevicius Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Teder Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.