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TRADE AND INDUSTRY

European Company Law—Cross Border Mergers

The Minister for Industry and the Regions (Jacqui Smith): The House will be aware that, between June and September 2004, the Government consulted on the proposed draft directive on cross border mergers. The consultation document set out in factual terms how the provisions of the directive would operate and invited comments. Ten responses were received from companies, legal advisers and industry bodies. The Government are grateful to those who took the time and trouble to contribute.

The Government support the facilitation of corporate restructuring activities across the European Union to promote the single market. An effective framework of European company law, which facilitates cross-border
 
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mergers and provides legal certainty and adequate safeguards for those who deal with the companies involved, is essential for that purpose. The proposed directive is intended to provide this. Responses to the consultation indicated that introducing a mechanism for cross border mergers for UK companies would not have a significant impact, as UK companies have historically tended to favour restructuring by means of takeovers rather than mergers. Therefore, the Government intend to proceed with negotiations in a manner which is balanced and proportionate and which seeks to achieve the best outcomes for UK business. The Government will also look closely at options for implementation and consult further with stakeholders before decisions are taken on the most appropriate vehicle for implementation.

Although there were a limited number of respondents, a variety of views were expressed on the scope of the directive (the types of company to which the directive should apply) where as views tended to be more aligned on the issue of employee participation. As most respondents were clear that the scope of the directive should apply to small and medium enterprises as well as larger companies, the Government have sought to achieve a broad approach to scope—whilst ensuring this provides necessary legal certainty.

The Government have considered carefully the responses on the employee participation provisions of the directive. Employee participation is a system that exists within some EU countries (such as Germany and Sweden) for the representation of employees on the board of companies over a certain size. The term also covers employees' rights to recommend and/or oppose the appointment of board members. The consultation
 
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showed that there are concerns that this process could be too burdensome upon business if it were to follow the precedent set in the European company statute model, as this is a complicated, time consuming and potentially costly solution. This model requires that there are negotiations on employee participation issues in cases where a European company is formed by cross border merger involving one or more companies with an existing system of employee participation.

Realistically, the Government cannot expect to negotiate a directive that would have the effect of removing employee participation rights where they exist in a company in another member state. For several member states, it is of fundamental importance to ensure that this directive does not undermine employee participation rights. Therefore, the Government have carefully considered the responses and will work towards an approach that keeps the burdens on UK companies to a minimum. In addition, it should be borne in mind that companies will be under no obligation to engage in a cross border merger and if they do not elect to, there will be no impact upon them.

Statutory mergers of the kind covered by the proposal are little used by UK companies and the evidence indicates that it is unlikely that UK companies will choose to merge with companies in countries that have high levels of employee participation. We intend to seek improvements to the proposal to develop a more flexible process for agreeing employee participation arrangements and are committed to the objective of making the merger process available and less burdensome for UK companies

I have placed copies of the summary of responses to the consultation in the Libraries of both Houses.